Efficiency and finance assessment of Network Rail
This document provides our Efficiency and finance assessment of Network Rail for 2016-17, the third year of control period 5 (CP5), which runs from 1 April 2014 to 31 March 2019.
Our annual assessments are intended to help customers, funders and other interested parties gain a better understanding of Network Rail's financial performance compared with the CP5 financial assumptions that we set out in our 2013 periodic review (‘PR13’) determination. Our assessments provide a yearly snapshot based on the best available information.
This 2017 publication covers the third year of CP5, 1 April 2016 to 31 March 2017. It presents financial information on Great Britain, Scotland, and Wales, as well as the ten Network Rail operating routes included in our determination. It contains information and commentary on Network Rail's expenditure and its efficiency compared to our PR13 determination, its income, borrowing, debt, regulatory asset base (RAB), financing costs and financial indicators.
The report highlights:
- Network Rail has become less efficient: The efficiency of Network Rail’s core business activities (i.e. operating, maintaining and renewing the network) has declined by 4.4% over the first three years of CP5. In contrast, our PR13 determination assumed a 13.7% improvement. In other words, costs have risen but we expected them to fall. We estimate that the cost of Network Rail not delivering as much efficiency as we expected is around £3.9bn, driven largely by higher than expected renewal costs.
- The backlog of work is increasing: Across the first three years of CP5, work to the value of £3.4bn has been deferred to a later date (£1.9bn of renewals, £1.4bn of enhancements and £0.1bn of associated schedule 4 payments). Network Rail currently forecasts that by the end of CP5 £3.9bn of renewals work will be deferred to a later date, which may affect the sustainability of the network and increase costs, in the medium and longer term.
- Increasing financial pressure: Network Rail’s net debt increased by £4.6bn to £44.8bn in 2016-17. The company has fixed borrowing limits with the Department for Transport for CP5. The latest business plan for Great Britain has £0.3bn of financial headroom, which means that the company expects that it will not need to use £0.3bn of the borrowing facility. In light of the risks to the company’s financial forecast, this headroom is low. In particular, the company may not achieve its planned efficiencies; movements in interest rates and inflation are uncertain; the value of asset disposal proceeds are also uncertain and are likely to be lower than originally forecast and cash may be needed to fund movements in the value of its financial instruments. Network Rail needs to further develop its contingency plans to address these pressures.
We are using PR18 to take route regulation further in CP6. But we are not waiting for CP6 to take advantage of this new structure and we will start transitioning in the year ahead.
- Efficiency and finance assessment of Network Rail for 2015-16
- Route-level efficiency benefit sharing payments (REBS) 2015-16
- Route-level efficiency benefit sharing payments (REBS) 2014-15
- Efficiency and financial assessment of Network Rail for 2014-15
16 Oct 2015
- Efficiency and financial assessment of Network Rail for 2013-14
- Annual efficiency and finance assessment of Network Rail 2012-13
12 Sep 2013
- Annual efficiency and finance assessment of Network Rail 2011-12 and annex to the 2012 report
8 Nov 2012
- Annual efficiency and finance assessment of Network Rail 2010-11
30 Sep 2011
- Annual efficiency and finance assessment of Network Rail 2009-10
8 Sep 2010
- Annual efficiency and finance assessment of Network Rail 2008-09
2 Oct 2009
- Annual assessment of Network Rail 2007-08
17 Sep 2008
- Annual assessment of Network Rail 2006-07
17 Sep 2007
- Annual assessment of Network Rail 2005-06
29 Sep 2006
- Annual Assessment of Network Rail 2004-05
29 Sep 2005
Underspend and efficiency
It is important for the viability and development of the railway that Network Rail delivers its outputs at the least possible cost in order to minimise the financial burden on both its customers and funders.
In order to facilitate this, in 2006 we published our policy on monitoring underspend and efficiency.
- Monitoring and treatment of Network Rail's underspend and efficiency: policy statement
- Independent Reporter: Audit of Network Rail's Roll Out of Cost Analysis Frameworks and Maintenance Unit Cost Measures - Final Report by Halcrow
- Responses to Monitoring and treatment of underspend and efficiency: consultation on proposed policy statement
- How our PR13 efficiency assumptions for Network Rail were derived
21 October 2015
- Network Rail 2013/14 Regulatory Accounts Year-end review, final report by Ove Arup
- Enhancement project spend efficiency assessment: investment schemes - independent report by CH2MHILL
7 August 2014
- Network Rail 2012/13 Regulatory Accounts Year-end review, Final report by Ove Arup
- Network Rail 2011/12 Regulatory Accounts Year-end review, Final report by Ove Arup
- Efficiency benefit sharing mechanism letter to the industry
22 March 2012
- Efficiency benefit sharing mechanism letter
11 November 2011
- Network Rail regulatory accounts data assurance - Final report by Ove Arup
- Network Rail's unit cost framework - Letter to Network Rail
9 May 2011
- Audit of the robustness of the Network Rail unit cost framework - Report by Ove Arup & Partners Ltd
Arup's report on the robustness of Network Rail's unit cost framework
- Network Rail annual return MUC and CAF audit 2009/10 - Report by Ove Arup & Partners Ltd
Arup's report on Network Rail's 2009-10 maintenance and renewals unit costs.