Home Rail News Hendy Review: Green light for projects but £2.5 billion more needed

Hendy Review: Green light for projects but £2.5 billion more needed

Three far-reaching reports have dominated discussions over the past few weeks, and there was a common theme: some things need to change.

Network Rail chairman Sir Peter Hendy, HS1 chief executive Nicola Shaw and Dame Colette Bowe have written a combined 168 pages on the current performance and financial state of Network Rail. Of the three, Hendy’s was the most anticipated; it was expected to reveal which projects, if any, would be cancelled and how Network Rail was going to overcome the delivery challenges faced by its enhancement programme.

Hendy sums it up simply in his foreword: ‘No infrastructure schemes have been cancelled’.

In fact, the majority of projects committed to in CP5 will be delivered within the funding period despite shortcomings in the planning process and a much stricter budget.

There will, however, be an impact on the cost of works. An additional £2.5 billion will be required on top of the £11.8 billion already committed to the enhancements budget. The rising cost of electrification schemes is the main factor.

Network Rail intends to raise £1.8 billion by selling off non-core assets with the remaining £700 million coming from the Government.

Hendy was appointed as the new chairman of Network Rail in July. He was tasked by the Secretary of State to carry out a thorough review of the CP5 enhancements programme.

Speaking with the assembled railway press, Hendy said that Network Rail had accepted the ambitious CP5 programme based on its funding model pre-reclassification. Those ‘comfortable’ days of borrowing to cover budget overruns are now long gone, said Hendy.

‘I think it’s a lesson not only for the organisation but for everybody else in the railway industry as well.’

Hendy expects only a handful of projects to creep into CP6, including the electrification of Oxenholme to Windermere and Bolton-Wigan, and capacity schemes at London’s Victoria and Waterloo stations.

He also said that the core business plan for the operation, maintenance and renewal of the network has had to be updated. Network Rail will now be unable to achieve the level of savings it had originally assumed, which will mean postponing some renewals works.

As well as seeking to address the current issues facing Network Rail, the report identifies the reasons why the organisation is faced with them in the first place. It says there was over optimism on costs and timescales, inadequate planning and changes in the scope and delivery of projects.

The report also acknowledges that there are various factors that could yet affect Network Rail’s ability to deliver the programme: changes in the DfT’s rolling stock specification, the limited pool of skilled signalling engineers, franchises changing hands and/or delays in the approval of new products.

Message from the CEO

Speaking during the Future of Rail conference at London’s Waldorf Hilton hotel the day before Hendy published his report, chief executive Mark Carne said it was important to recognise the success Network Rail has had with projects like Birmingham New Street, Borders and the new Oxford-London Marylebone link.

‘It’s important that we all recognise the success of our industry,’ said Carne. He went on to compare Network Rail’s performance with other European nations. ‘We’re by no means a laggard in Europe in train performance as a whole.’

But he did recognise that things haven’t gone well in recent months. Network Rail has drawn criticism from various quarters over the past few weeks for its handling of the Great Western electrification project, which Carne admitted to ministers last month would be delivered later than planned and at a higher cost.

‘You will have seen the press coverage of this; it’s not gone as we had hoped it would go, of course it hasn’t,’ said Mark Carne.

‘The costs are much higher than even we thought they’d be a year ago and significantly higher than we thought they’d be when the idea was first drawn up five years ago.’

Too many projects included in the CP5 plan were at an immature level of planning, said Carne, who sought to explain some of the reasons behind the challenges on the Great Western and several other major electrification schemes. At the point Network Rail announced ambitious plans to electrify a large portion of the national network, it had no compliant design against which to carry out cost estimations.

Ultimately, he felt that Network Rail now needs to dig in.

‘We need to press on. We need to press on with devolution… We need to press on with the commercial innovation that I’ve been talking about because we’re going to need new ways of raising money to invest in the railway. We need to press on with the Digital Railway approach as well because we have to create a lot more capacity on our railway and we know that building new railways in urban centres is just not practical.’

No place for the ORR?

Bowe, like Hendy, was also critical of Network Rail’s planning approach, but she also felt that there needed to be a close examination of the ORR’s role and responsibilities in reviewing the planning of multi-billion pound enhancements schemes.

Hendy said he thought the relationship between Network Rail and the ORR needed to be ‘reset’, referring specifically to the approach taken by London Underground.

‘I’m interested to discover the role of the railway regulator because I ran quite a big railway and I didn’t have a regulator at all,’ said Hendy.

‘We decided our view of renewals and enhancements for the Underground on a business basis. This is now a publicly- owned company, wholly owned by government, and actually government can decide itself various things about the operation of the railway without reference to a regulator. I don’t think there’s no use for regulation here – apart from everything else it’s inevitable. If you look at Shaw, it’s quite inevitable that people will want to get third party money into the railway because the whole history since the formation of British Railways is that there’s never been enough public money to invest in the railway, so you will need a regulator.’

Alluding to Hendy’s past life as a bus driver, Terence Watson, the UK president for Alstom and co-chair of the Rail Supply Group, said the report showed that the wheels haven’t come off the bus. ‘We can hear a bearing rubbing but that’s about it,’ he added, addressing the NSAR annual general meeting on 1 December.

More detail on what impact the review will have on individual projects will be published later this month. Says Hendy, ‘The Government has demonstrated in its funding commitment that it is completely committed to modernising the nation’s railways to enable sustained economic growth, job creation and to build homes. Network Rail will do its utmost to deliver the improvements set out in this report.’

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