Management Plan

Network Rail Initial Strategic Business Plan Control Period 4 June 2006 Con t en ts Executive summary 1 1. The strategic context 4 2. The demand for rail 8 3. Managing our assets 14 4. Efficiencies and input prices 32 5. The Baseline plan – today’s railway 50 6. The Base Case plan – responding to growth 73 7. Expenditure and financing 90 8. Sensitivity and scenario analysis 93 9. Summary of future developments 96 Appendices 101 Network Rail’s Initial Strategic Business Plan 1 Exec 1 • developing a new infrastructure cost model to Executive summary utive summar provide a consistent, transparent approach to This document is Network Rail’s Initial Strategic our longer term projections, to provide more Business Plan for Control Period 4 (CP4). It disaggregated information and to support the articulates Network Rail’s emerging plans for improved understanding of cost drivers y operating, maintaining, renewing and developing including the impact of traffic. the network. The document focuses on CP4 (2009/10 to 2013/14) but also includes high level But this is only the beginning of the process to projections over a longer period. determine our plans for the next control period. There remains a great deal to be done, working This document is the first submission for the Office with other industry stakeholders, to improve the of Rail Regulation’s (ORR’s) Periodic Review 2008 robustness of our plans and to assess alternative (PR2008). It therefore aims to inform our options for the railway. We will continue to customers and funders of the issues and strategic challenge our initial projections and to build on the choices the industry and funders face for CP4. In improvements described above. For example, in particular, it aims to inform the Department for developing our asset policies and the infrastructure Transport (DfT) and Transport Scotland in the cost model, we will do further work to examine the development of their High Level Output trade off between maintenance and renewal Specification (HLOS) and Statement of Funds activity levels and the impact on outputs. Available (SoFA) documents. Our plans will be updated in our Strategic Business Plan to be Over the next 18 months we will also improve the published in October 2007. robustness of our plans for CP4 in a number of areas, including: Following discussions with ORR, DfT and Transport Scotland, this plan has been put together based on • developing a much better understanding of how two alternative strategies. Continued focus on we can deliver further efficiency savings during improving safety is fundamental to both strategies. CP4, including development of our world class The strategies comprise: transformation programme. This will enable us to develop a challenging but realistic efficiency • the Baseline which provides an understanding of profile for CP4; the efficient minimum cost to maintain a non- • publication of further Route Utilisation Strategies degrading infrastructure but would not which will help us to improve our enhancement accommodate substantial growth; projections together with specific further work to • the Base Case which seeks to provide the improve the robustness of our projections for capacity needed to accommodate a reasonable individual schemes; projection of growth in passenger and freight • reviewing the overall deliverability of our initial demand whilst delivering sustained good plans taking into account the availability of performance at or above the level we plan to supplier resources and engineering access; achieve by the end of CP3. • integrating our plans for enhancements and renewals of the network to improve overall Our plans aim to reflect the different priorities for affordability; each route. They include separate projections for • working with the industry to develop detailed Scotland, and England and Wales. As with the safety metrics and specific plans to deliver overall level of costs, however, further work is safety improvements; required over the coming months to improve the • further analysis of the costs and benefits of the disaggregation of our costs. European Rail Traffic Management System (ERTMS); The plan represents an important step forward in • development of possessions strategies for the the development of robust plans for the railway. It network based on optimised whole industry therefore provides a basis to start the debate on costs and benefits; and the options and trade-offs that need to be • sensitivity and scenario analysis to assess the considered. In particular, we have made impact of alternative assumptions and to explore significant improvements in some key areas which the implications of alternative strategies. We will include: be providing further analysis to ORR by the end of September 2006. • developing draft high level strategies for each of the 26 strategic routes which include an initial view of route enhancement options for discussion with our industry partners; • updating our asset policies together with the first version of our asset policy justification documents; and Network Rail’s Initial Strategic Business Plan 2 Exec In December last year, ORR provided its initial Our work to form a view of the level of efficiencies utive summar assessment of our expenditure requirements for that may be possible in CP4 is inevitably in its early CP4. Excluding non-controllable operating costs, stages. It is clearly not yet possible to make a our initial Baseline and Base Case projections of robust projection of the levels of efficiency we will y operating, maintenance and renewals expenditure be achieving in up to eight years time. Therefore, are both slightly below the top end of the range for the purposes of producing this initial plan, we identified by ORR. However, non-controllable have developed reference assumptions which also operating costs are significantly higher than ORR take account of the fact that the potential for year- assumed, largely due to the increase in electricity on-year improvement will tend to diminish over for traction costs. time. For most of our operating, maintenance and renewals expenditure we have assumed that the Controllable operating costs are projected to be efficiency savings that can be achieved are initially marginally lower than the top end of ORR’s initial around the middle of the ORR range (two to eight assessment. In addition, although we have slightly per cent per year) and that this will decline over increased our maintenance projections to reflect time. We have assumed that lower efficiency the impact of increased traffic, this is broadly offset savings are achievable for signallers and that there by increased variable charges paid by operators. will be no real change in non-controllable costs, insurance and pensions. In the Base Case, our overall renewals expenditure is marginally lower than the top end of ORR’s As indicated in ORR’s initial assessment, these range. Since we last published long term efficiency savings may be offset by price rises in projections in the 2005 Business Plan (BP2005), excess of general inflation for some of our inputs. we have reduced the projected level of CP4 plain We therefore commissioned an independent study line track renewal by around three per cent. We to examine the impact of real price inflation on our have also reduced signalling expenditure by input price trends. The study has provided a almost 40 per cent since BP2005 following a range of input price inflation forecasts and we have detailed review of the scope and timing of reflected the central estimates in this plan. resignalling schemes and the development of a detailed workbank for minor works. Finally, we The figure opposite illustrates the projected level of have significantly reduced our planned expenditure in our Base Case projections for CP4 expenditure on IT in the light of progress achieved compared to CP3 and CP5. This shows that we already and the development of better plans. are planning to reduce average annual However, we have increased the level of expenditure on operating, maintaining and expenditure on operational property as we have for renewing the network from around £5 billion in the the first time started to develop detailed current control period to just over £4 billion per assessments of long term activity and expenditure year in the next control period. We expect this to requirements. We have also increased the Base reduce to just over £3.5 billion per year in CP5. Case projections for civils expenditure to reflect a This reflects the progress we are making to detailed assessment for work required on our address the backlog arising from past largest 26 major structures. underinvestment, to understand the condition of our assets and their long term renewal There has been significant investment in the requirements, and to improve the efficiency of our network over the last few years. As a result the business. average age of some of our key assets is falling. However, the network has not yet reached steady The plan includes our projections for the state and our plan therefore continues the high continuation of significant growth in passenger and levels of investment during CP4. Beyond CP4, freight demand over the next ten years. In our however, we are forecasting that our annual Base Case plan, we have set out a potential renewals expenditure will reduce from over strategy to respond to this expected growth. This is £2 billion to around £1.6 billion per year. For based on our assessment of the implications for example, we expect to continue renewing around train services and the extent to which the 2.8 per cent of plain line track during CP4 but that infrastructure can accommodate this traffic. We this will fall to around 2.3 per cent in subsequent have identified a range of enhancement schemes control periods and we now have much more that might be required to respond to this growth.

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