Railtrack plc

Railtrack gives cautious welcome to the regulator's provisional conclusions on the incentive framework

date 14 April 2000   source Railtrack plc   type Press release

Provisional Conclusions on Incentive Framework

Railtrack welcomes the Regulator's intention to create an incentive structure which allows us to share for the first time in the benefits of growth on the network. The document published today goes a long way to providing greater clarity and better framework to help the industry work together.

Gerald Corbett, Chief Executive Railtrack, said 'We see this as a step in the right direction. We have long been arguing for the right incentive framework to deliver the enhancement on the network which is necessary to allow the continued growth in rail travel. We are pleased that the regulator has now taken steps to align our economic framework with our public service obligations.

While the Regulator's proposals bring much need clarity on the framework for enhancement, we do not believe they go far enough in providing the right incentives and rewards for investment.'

The scale of financing requirements needed to accommodate forecast growth of traffic on the network poses a significant challenge for Railtrack. We do not believe the Regulator's proposals go far enough in acknowledging this. In proposing the same rate of return for the enhancement investment as for the sustained network the Regulator is taking insufficient account of the greater risks associated with complex construction projects on an operational railway and some form of explicit premium is essential to reward shareholders for these risks.

The regulator gives prominence to the use of Special Purpose Vehicles (SPVs) to facilitate third party involvement in network development. Railtrack believes that while there is scope for these on stations and for new railway lines, he has given insufficient weight to the real practical issues associated with third party investment on the core network and that there are other more promising approaches to increasing financing capability.

Railtrack has undertaken a great deal of detailed work on charging structures and we are pleased that the Regulator has accepted the broad thrust of our proposals, although there are significant differences in the detail and practical questions over implementation arrangements.

We are pleased the Regulator has accepted the argument for a volume incentive for Railtrack although more work is needed to ensure this provides an effective means to encourage growth on the network. It is important that variable usage charges properly reflects the true costs of running extra trains on the network - otherwise overall incentive effects could remain negative.

The document also provides more clarity on the outputs we are expected to deliver, areas we have been working closely with the Regulator. The Regulator proposes to strengthen the operation of the performance regimes - under which Railtrack has reduced delays to trains by nearly 50% - but in the context of a strongly growing railway it is important that benchmarks are set at realistic levels.

The Regulator's proposals to extend the periodic review timetable, while extending the period of uncertainty associated with the review, will provide more time to develop a more considered and robust regulatory determination.

There is a great deal in the report which we shall need to consider in more detail before we are able to give our considered response. Our initial reaction is that, while they represent steps in the right direction, further work is needed to achieve the Regulator's objective of sweeping away all the shortcomings of the existing framework. We have been working closely with the Regulator, and will continue to provide proposals to help him to bring about a satisfactory conclusion to the periodic review.

Railnews Archive ::: 2000-04-14 RTK-001

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