Bill Emery, chief executive of the Office of Rail Regulation (ORR), told The Times that at least one rival infrastructure company was needed to gauge Network Rail’s performance.

Network Rail was created by the Government in 2002 to replace Railtrack. It is technically a private company, but it has no shareholders and is dependent on public subsidy.

The ORR will announce on Thursday how much income Network Rail will receive between 2009 and 2014. It is expected to give Network Rail £1 billion a year less by 2014 than the company claims it needs, a 25 per cent cut in its running costs. The Government has set an industry target of 92.6 per cent of trains to run on time by 2014, up from 90 per cent at present.

Network Rail has made steady progress in reducing costs, but it has failed to meet its own targets for cutting delays and still consumes three times as much subsidy as British Rail did. It is also less efficient than several publicly owned networks on the Continent, according to ORR research. The ORR has fined Network Rail twice in the past year for overrunning engineering works that have affected hundreds of thousands of passengers.

Mr Emery said that Network Rail had one last chance to prove that the current industry structure could work. Referring to the punctuality and efficiency targets, he said: “If they don’t rise to these challenges, then there is a real, legitimate question as to whether the structure is right.”

He criticised Network Rail for jealously protecting its monopoly and refusing a proposal from Merseytravel, the public transport authority on Merseyside, to run its own tracks. Merseytravel wanted to combine track and train operations for the first time since privatisation. The change could have saved up to £30million a year and delivered better performance.

Mr Emery said: “It would have tested whether working closely together as a vertically integrated piece of railway would lead to a better performance and lower costs.”

He said that a better structure could be to reintegrate tracks and trains into “city regions”, giving local authorities greater powers to improve services. Mr Emery, the former chief engineer of Ofwat, the water regulator, added that the railways could learn from the water industry, which is split into regional monopolies. Ofwat measures the companies’ performances against each other when setting their targets. While the ORR does not have direct power to alter the structure of the industry, it can put financial pressure on Network Rail to reform itself.

Mr Emery said that the ORR could decide to reduce Network Rail’s income to the lower level that might be needed by more efficient regional track companies. The Conservatives are considering how the rail industry could be restructured and are looking closely at the idea of splitting up Network Rail into a number of regional integrated track and train companies.

The danger signals

May 2008 Thousands of travellers to London were delayed or forced to abandon their journey when signals near Milton Keynes failed a few days after May Bank Holiday improvement work. Many trains into London Euston were cancelled

March 2008 Commuters experienced long delays when engineering works scheduled for the Easter Bank Holiday overran in East Anglia. Many trains into London Liverpool Street, which had been closed over the holiday, were cancelled and more were delayed

February 2008 Network Rail apologised after thousands of football fans travelling to the FA Cup Final at the Millennium Stadium in Cardiff missed the kick-off and then spent hours queueing for trains home after a fault with signals

December 2007 to January 2008 Network Rail was fined £14 million by the Rail Regulator after work on tracks near Rugby went on four days longer than planned, causing major disruption and bringing many services to a standstill

Sources: agencies; Times archive

Comments

British Rail was one of the few state owned companies that actually worked. Why then seek to compartmentalise the railways further? Do you remember Beecham? He cut costs very effectively, but was too short sighted to see the long term effects which were rather unfortunate.

gmac, Kassel, Germany

When comparing network rail to other state owned railway networks someone seems to forgotten that those other networks also receive the full income from fares with no stripping off of profits to private companies. Not exactly a fair comparison.

Jason Hurst, Dereham, UK

See also:

Bill Emery of ORR: A regulator who plays it safe

The Times: June 3, 2008
Ben Webster: transport correspondent

Even after three years as head of the Office of Rail Regulation, Bill Emery is still guarded when talking about rail infrastructure.

Bill Emery, chief executive of the Office of Rail Regulations.

Bill Emery's most significant act since becoming chief executive of the Office of Rail Regulation (ORR) has been to extract £14 million from the rail industry's annual subsidy - via a fine imposed on Network Rail - and hand it back to the Treasury.

Contrast this with the decision in 2003 by Tom Winsor, the former rail regulator, to force the Government to invest an additional £1.5billion a year in the network.

Passenger Focus, the rail consumer watchdog, said that it was extremely disappointed by ORR's “posturing” over the fine, which it said would cost passengers £14 million in lost investment. But Emery says that he is content with ORR's decision to fine Network Rail for overrunning engineering works rather than compensate passengers with improvements to information systems.

The fine will go into the Treasury's consolidated funds, but Emery says that the humiliation of Network Rail will spur it to greater efficiency. “In theory a regulatory fine should have no impact on the passenger. In practice, all I can say is that we are setting fines at a level that sends Network Rail a very strong signal in reputational terms, but has no significant impact on its finances.”

Emery is clearly frustrated by his lack of powers to hold Network Rail, a Government-created monopoly with no shareholders, to account. He joined ORR in 2005 from Ofwat, the water regulator, where he was chief engineer.

Both industries face the challenge of maintaining ageing infrastructure, but the water industry is split into about 20 regional companies whose shareholders would feel the pain of any fines. “The water industry has the huge advantage for the regulator of having competitor companies of different sizes. That provides a very powerful way of comparing and contrasting one with another.”

He also speaks approvingly of the absence of complex contractual relationships in the water industry. By contrast, privatisation splintered British Rail into 100 separate companies, each with its own set of lawyers contesting its rights.

Emery, who is much more cautious about upsetting the Government than Winsor was, chooses his words carefully: “There are lots of people who say that the current structure is not optimal. I would probably take a raincheck on whether it's ideal.”

However, he says that he was somewhat disappointed that Network Rail rejected a proposal from Merseyrail that it should run its own tracks, saving an estimated £30 million by reintegrating the local network. “We can put some pressure on them, but at the end of the day these matters are for Network Rail. It [the Merseyrail proposal] would have raised big questions and thrown the challenge on to Network Rail.”

On Thursday ORR will announce its draft determination of how much money Network Rail should receive for the next five years. It is expected to give the company about £1 billion less than it claims to need to fulfil the Government's plan to expand capacity and improve punctuality.

Emery is clearly uncomfortable with Network Rail's monolithic structure and receives many complaints from train companies which say that it ignores their needs. But he appears willing to go along with the Government's decision to put structural reform of the railways in the “too difficult” box. Asked directly whether he believes Network Rail is too big and too distant from local decisions, he says: “Again, I will duck that.”

To be fair to him, these are primarily questions for political leaders. The trouble is, they are ducking them too.

Born: June 28, 1951, in Sheffield

Career: B Eng in structural engineering, PhD in public health engineering, University of Sheffield. Engineer at Yorkshire Water (1975-90); head of engineering intelligence, later director of cost and performance, as well as chief engineer, Ofwat 1990-2005; chief executive of ORR since 2005.

What he says: “If [Network Rail doesn't] rise to these challenges, then there is a legitimate question as to whether the structure is right.”

Little-known fact: He admits to sometimes jumping red lights when cycling to work from his flat in Islington, North London, to the ORR offices in Central London.

See also:

Network Rail could lose rail monopoly

Contract Journal: 03 Jun 2008
By Roxanne Millar

Network Rail could lose its monopoly over Britain’s rail infrastructure if it doesn’t meet new targets to improve punctuality and reduce costs.

Office of Rail Regulation (ORR) chief executive Bill Emery said at least one rival infrastructure company was needed to gauge the company’s performance.

He suggested a better structure could be to reintegrate tracks and trains into city regions that give local authorities powers to improve services.

His comments come two days before the ORR announced how much Network Rail is to receive between 2009 and 2014.

The Times reported the ORR is expected to give Network Rail £1bn a year less by 2014 than the company claims it needs.