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Network Rail gets its money – but SRA loses authority over how it gets spent
Talk about the ego has landed. One Friday evening at the end of January the phone rang. It was Carolyn Griffiths , Chief Inspector of the Rail Accident Investigation Board and this year's Chairman of the Railway Division of the Institution of Mechanical Engineers.
‘What are you doing on March the fifth' she asked?
No need to find the diary. The first Friday in March is the date of the social event of the railway year – the railway Division's annual lunch. I say social event, but railwaymen and women were networking at the R.Div lunch before networking was invented. If you get away before five o'clock you are not trying.
So, I replied ‘enjoying lunch on the Westinghouse table at the Hilton'.
‘Why don't you join us on the top table and be our guest speaker?'
There was a long pause at my end. The list of speakers for the last five years goes like this. John O'Brien, Franchising Director, Sir Alastair Morton, Chairman of the Shadow SRA, Tom Winsor , Richard Bowker and Gwyneth Dunwoody, the feared and respected Chairman of the Parliamentary Transport Committee.
Then I made my excuses, namely that this speech is a job for seriously grown up people. There was some arm twisting, a touch of flattery and, reader, I succumbed.
Fortunately, my fellow columnist Tony Miles was there to bring me down to earth. ‘I know why they chose you' he said when I imparted the glad news, ‘with the railway in its present state you were the only person guaranteed to be in the same job in five weeks time'.
There was one proviso from Carolyn: no mischievous remarks about important people. But when you have an audience of 1035 movers, shakers and informed sources plus control of the only microphone, you have to put on your black suit and be seriously serious.
So I took as my theme the Transport Secretary's review of the railways and considered what sort of structure engineers would like to see emerge in the summer. The answer was, of course, a structure which brings engineers on both sides of the railway's various technical interfaces under unified control and command. Or vertical integration in shorthand.
Exhibit A was the wheel rail interface, where, as you read in last month's RSSB Safety Report, the Wheel Rail Interface System authority has had to be wound up because it could not obtain Professional Indemnity insurance for its members or Public Liability insurance for the organization itself.
Even Transport Secretary Alistair Darling now concedes that the present structure is dysfunctional. He still doesn't get it. Any structure in which responsibility for the contact patch where wheel meets rail is uninsurable is not dysfunctional, it is certifiably insane.
Another interface needing strong command and control is between trains and power supplies. When Networker, Eurostar and Class 92 came in on the Southern 750 Volt DC system under BR, the power supply engineers ensured there were enough amps for the traction engineers, the traction engineers did their best to minimise the annoyance their kit caused track circuits and where track circuits were still too sensitive the signal engineers dulled the response.
Contrasting this with the current Southern Region Power Supply Upgrade also illustrated the need for vertical integration. And then I got a bit carried away and added that because everything is being done in a ruddy blush, and because the railway's finances are out of control, ‘the southern power supply is being patched up on the cheap to provide the bare minimum needed to run the new fleets'. Then as the red mist of megalomania thickened I concluded, ‘It really is quite shameful that the Southern in the 21sct Century will still be limited to 1,500 Amps per train'.
Oops. As I networked afterwards an SRA chum came up to challenge these remarks. His view was that there was a lot of scope for improvement with the nominal 1,500A per train, such as increasing the voltage at some locations from the present 660V to 750V and the future introduction of regeneration. And it may turn out that some sections of route can handle 1,800Amps per four car if we can find a way to tell the drivers where they can crank up the amps.
Meanwhile, my chum continued, the SRA, as sponsor, had cut back Network Rail's £1billion project by a substantial amount. And as you will have read, about 50% of the originally proposed enhancements were considered marginal. When the power upgrade is complete and all the trains are in and running, these locations will be monitored to see whether they as a marginal as SRA says.
‘But hang on a minute', I interjected, ‘ didn't think the SRA could tell Network Rail what to do'. Clearly I didn't understand the difference between sponsorship and delivery. SRA sponsors, Network Rail delivers and, on the SRPSU, the SRA determines where each of the new sub-stations goes.
Now the previous Friday, the Office of National Statistics (ONS) had published a paper updating its reasons for classifying Network Rail as being in the private sector. Yes I know that without billions of our money it could not exist, but we are in the virtual world of politics here. It is vital to the Chancellor that Network Rail is officially in the private sector, otherwise all its debt would be on the Public Sector Borrowing Requirement (PSBR) and that would make the Chancellor look imprudent.
This was the gist of the ONS update. Back in June 2002 it had announced that Network Rail would be reclassified as a private non financial corporation – that is, in the private sector, once certain criteria had been met. The main condition was that a vote of its members should approve the board of directors.
This happened on 16 August 2002 and from that date Network Rail was off the Government's books. But, since then ‘new evidence has emerged' that the public sector temporarily retained more influence over Network Rail than was anticipated in the legal documents that ONS analysed before making its decision.
An ‘exceptional and temporary arrangement' was used for the financial year 2002/3 during which the SRA had a role in the Network Rail directors' Incentive Plan.
ONS has now decided that, while the temporary arrangements were in place, the public sector had sufficient influence over Network Rail for it to continue to be classified within the public sector. As a result, the date of reclassification from public to private sector has thus been amended from 16 August 2002 to 1 April 2003 .
Now you might think that being involved in Network Rail's director's pay is small potatoes compared with telling them how to upgrade the Southern power supply – or when to quadruple the Trent Valley , come to that. You might, Tom Winsor certainly does.
Soundbite'It is not for the Government to tell private sector companies what to do as if they owned them'. Rail Regulator Tom Winsor January 21 2004 |
Our former columnist emphasised that, the Government does not own the railway industry ‘and knows it'. However, it does have ‘a legitimate interest in the efficient and effective operation of the railway industry'. This is the case with all the regulated industries, such as energy, water and telecommunications, which are regulated in the public interest by omniscient beings like Tom Winsor .
Soundbite‘The state sold the railway industry in 1995/6/7, and as far as I can remember it hasn't bought it back'. Rail Regulator Tom Winsor January 21 2004 |
Despite this state of affairs, said Tom, the impression is ‘too often given' that the railway industry belongs to the state. As an example, he quoted a Labour MP who asked him for his views on the difficulties of regulating a company limited by guarantee – ie Network Rail.
The MP asked whether the Regulator was suggesting that Network Rail should be privatised. ‘I patiently explained to him that the last time I checked the company was in the private sector, it was placed in the private sector seven years ago, and it is still there'.
This interchange typified, for the Rail Regulator, the ‘mindset of so many commentators, politicians and others' that Network Rail and the national infrastructure is owned, and therefore controlled, by the state.
While Network Rail is regulated in the public interest, regulation is not the same as control, Tom Winsor explained. Network Rail is accountable to its customers under its contracts, and to its regulator under the law, but, in a direct challenge to the SRA, the Regulator added ‘it is not, and never has been, subject to the direction and control by the Department for Transport or any of its agencies'.
This fighting speech was all good knockabout stuff, but there were more pressing issues with which to fill this column. Wrong decision. We now see that this speech was the equivalent of the ORR Grand Fleet slipping its moorings and stealing out of harbour under radio silence.
Because, unknown to the ONS, SRA had retained controls over Network Rail which it had acquired at the time of the company's acquisition of Railtrack, despite the Concordat between ORR and SRA signed in February 2002 which delineated the two organisations' separate responsibilities
And at the end of February, according to Informed Sources, when Network Rail, backed by the SRA and Department for Transport came to the Regulator seeking approval for the reprofiling of access charges and grants under the interim review, the ORR crossed the SRA's ‘T'. To the flicker of muzzle flashes in the murk, the Regulator refused to accept the funding proposal until SRA relinquished its suite of controls.
Responsibilities defined and re-emphasisedThe jurisdiction of the SRA is separate from that of the Rail Regulator. It neither overla ps nor competes with that of the Rail Regulator. The two authorities have common statutory purposes. They have separate and complementary jurisdictions. Apart from the accountability of its Board to its members, Network Rail's principal accountabilities are to its train operator customers, under access contracts and the network code, and to the Rail Regulator under statute and the company's network and station licences. The SRA monitors and enforces the consumer protection conditions of Network Rail's licences. The Rail Regulator is independent of Government, whereas the SRA is a non-departmental public body. The Secretary of State attaches considerable importance to the independence of Network Rail, as a private sector company limited by guarantee, which is accountable to its members and subject to independent economic regulation. He views as essential the commercial relationship between Network Rail and its customers, who are the operators of freight and passenger services. The fact that income is received in the form of grant will not affect in any way the independence of Network Rail or disturb the company's contractual and commercial relationships. The payment of grant does not create any obligation on the part of Network Rail to the Strategic Rail Authority or any right on the part of the SRA to seek to direct or influence Network Rail. David Rowlands Permanent Secretary Department for Transport (Letter to Rail Regulator December 16 2003)
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Apart from the fact they may well have kept Network Rail's debt in the PSBR even longer than the ONS thought, the Regulator argued that Network Rail's contracts with SRA represented ‘unnecessary duplication' of the regulatory regime. He believes that many of the SRA controls introduced during the acquisition of Railtrack had become redundant and constituted ‘inappropriate double jeopardy' for the company and ‘distortions in the dynamics of accountability'.
Two controls are understood to have particularly concerned Mr Winsor – although ‘incensed' is probably more accurate. One gave the SRA the right to require Network Rail to implement its business plan. The other placed an obligation on the company to implement SRA strategy.
According to Informed Sources, SRA resisted the ORR's demand to give up its suite of controls. And wouldn't you, if you were about to fork out £2billion a year of the public's money in grant to the railway's biggest spender?
But Tom Winsor makes Dolores Ibarruri seem conciliatory and stuck to his demand – relinquish control or pay the full track access charges from 1 April. Since this would wreck the Government's budget, the DfT had to direct the SRA to comply.
This behind-the-scenes power struggle has serious implications for the Secretary of State's Review of the railways. In effect the state has no control over how, or on what, £2billion of grant, plus a sizeable chunk of the as yet undetermined passenger subsidy which goes into track access charges, is spent.
True it has control at second hand through the passenger TOCs, and they will become more effective surrogates as their number diminishes and the scale of operations increases. But those uncontrolled direct grants cannot be politically supportable for long.
And it is worse than that. The present Regulator knows the industry and its legislation inside out, is a slave to duty and is not afraid to take unpopular decisions. Well, actually, he is attracted to unpopular decisions as the sparks fly upwards. But from 4 July, the Office of the Rail Regulator becomes the Office of Rail Regulation.
This means that instead of the omnipotent Regulator, decisions will be taken by a Regulatory Board. Here is Tom Winsor 's take on the change. ‘I might add that I expect that the Kremlinology of regulation in the railway will become far more interesting with a nine-member board. People outside - stakeholders of all kinds - will be trying to work out who are the board's hawks and doves on particular issues, building coalitions, consensuses, compromises, voting blocks to stop things, alliances to push some through. I expect they will have great fun speculating on all this!'
Well, this column is the fountain of fun when it comes to railway politics and a come-back railway Kremlinology is overdue. But I have a nasty suspicion that as Network Rail becomes more competent and confident in its improving performance a nine member board is going to lack the necessary collective will to be bloody bold and resolute at the first sign of trouble.
Where does a 25 stone gorilla sleep? Where it likes