April 11, 2013

Higgins steers Network Rail’s capacity uplift

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Britain's infrastructure manager Network Rail is in the midst of a huge investment programme to modernise the railway and expand capacity, while at the same time trying to reduce costs. David Briginshaw talks exclusively to Network Rail's CEO Sir David Higgins about the challenges the organisation faces.

NETWORK Rail (NR) has come a long since it took over from Railtrack in October 2002. Punctuality has improved dramatically from a nadir of 78% in 2001-02 to 91.4% today, while NR has taken maintenance in-house to give it far better control of the cost and management of maintaining the infrastructure than Railtrack ever achieved. Its maintenance philosophy has changed from "find and fix" to "predict and prevent," and there has been a concerted effort to understand the condition of the assets and to improve safety.

NR has been quite successful in reducing costs during the last few years, so I started by asking Sir David Higgins, NR's CEO, how this has been achieved? "At the start of Control Period 4 (CP4) in 2009 we launched a company-wide transformation plan to address the challenge of increasing efficiencies by £5bn - that's an average saving of £2.7m every day in CP4," he replies. "Major initiatives included a review of our asset policies, improved work bank planning, increased use of competitive tendering, improved maintenance productivity and the creation of our operations strategy to move more signalling and control into regional control centres.

"Last year we devolved a much greater level of decision-making to our routes and launched a review of the way we manage the delivery of our infrastructure projects," Higgins continues.

SirDavidHiggins315Another initiative last year was the creation of an alliance between NR's Wessex route and South West Trains which Higgins says should help "drive out duplication of work." He says the alliance has initiated new-found cooperation and mutual trust between NR and SWT staff. "With one unified management team, it is now irrelevant - as well as increasingly difficult to tell - which parent organisation each person comes from," Higgins reveals. "NR staff now have a better understanding of the impact of our work on the train operating company and passengers, and SWT has a greater understanding of the issues we face in gaining access to the track for essential maintenance and renewal. Both sides can see that there are few easy wins, but more to gain by working closely together. For example, we have been able to rebalance priorities on key stretches from Wimbledon and Barnes into London Waterloo and we expect greater efficiencies as we transfer capital budgets into the Alliance."

Nevertheless Higgins does not regard alliances as a panacea. "It will not be replicated wholesale across the country," he says. "The key to improving performance is understanding the nuances and the differences in each area and making sure that our solutions - whether through an alliance or other forms of closer working - deliver the best possible results."

The Office of Rail Regulation (ORR) has been relentlessly trying to drive down NR's costs, and the 2011 McNulty report put Britain's national railway in a poor light compared with other European rail networks. So the question is whether NR can continue to cut costs.

Higgins believes NR can: "In our strategic business plan we have shown that, following a 27% efficiency improvement in CP3 and 20% in CP4, we believe we can continue to reduce costs in CP5 by a further 18%," he predicts. "This means we will have more than halved our costs and met the savings attributed by McNulty to NR."

Higgins lists a number of measures which will enable NR to achieve this target:

• a review of asset policies

• improving work scheduling

• greater standardisation

• creating a more multi-skilled workforce

• adopting a risk-based approach to maintenance

• producing better asset information and using it more effectively

• harnessing technology, and

• providing better support to front line business units and removing duplication.

Both passenger and freight traffic are continuing to grow strongly despite the poor state of the British economy, which continues to dip in and out of recession. Figures released by ORR last month show that passenger-km grew by 2.8% between October 1 and December 31 2012, while revenue generated by the passenger franchises soared by 8.3% to £1.96bn. Freight has also been growing with tonne-km reaching 21.43 billion for the last four quarters, compared with 20.68 billion for the previous year.

This success is putting great strain on the network and the focus is on restoring capacity lost during the British Rail austerity period and removing the worst bottlenecks. But NR's ambitious capital expenditure programme is pushing its debt inexorably higher with net borrowings currently at £28bn compared with assets of £45.3bn. I asked Higgins if this level of debt is starting to give him sleepless nights.

"Raising funds like this is the most efficient way to fund railway investment," he responds. "We raise capital against the value of our regulated asset base (RAB) to fund rail improvements which in turn improves the value of the RAB as well as helping to drive economic growth. Therefore, although NR's debt levels are growing, given that its RAB is growing as well, these levels are sustainable under the regulatory framework, and our debt to RAB ratio remains lower than the 75% target set by the ORR."

Higgins says NR's funding model is used by other infrastructure heavy industries in Britain. "Compared with these, our debt to RAB ratio is similar to National Grid and lower than some water, gas and electricity distribution companies," he explains.

NR has an increasing number of major investment projects underway and planned. These include the reconstruction of Reading, Birmingham New Street, and London Bridge stations, the latter a crucial part of the Thameslink scheme, NR's involvement in the London Crossrail project, the Northern Hub centred on Manchester, and a rolling electrification programme.

The question is whether NR has sufficient resources to complete all this work. For example, very little electrification has been carried out in Britain during the last decade or more, so are there enough engineers with the skills needed to carry out such a large programme?

"I believe we have built a great reputation for project delivery during the current control period, at a time that has seen some extraordinary project challenges," he replies. "For example, we have transformed stations like London King's Cross and London Blackfriars along with delivering the first stages of Thameslink and Crossrail. This is alongside complex projects like Birmingham New Street and Reading and designing and planning the electrification works already announced.

"But you are right to say that CP5 has its challenges - and electrification is a good example of this. As you say, we need to build capability in this area and we are working with our supply chain to develop the resources we need. This includes working with the Railway Industry Association and the National Skills Academy for Rail Engineering to invest in developing qualified people and converting existing skilled engineers from related industries, like power.

"But the challenge is wider than that - the work includes significant bridge reconstruction, resignalling, civil engineering and track works. Specialist plant is being developed to deliver the work in the restricted access available and to make the best use of the resource available."

Higgins says NR has conducted a full review which has identified all the key resource areas, available capacity, and emerging risks and trends. "We are very conscious that CP5 is little more than a year away and we need to be ready," he says.

NR has submitted a £37.5bn spending plan for CP5 to ORR for approval. Higgins says the plan was developed by the newly-devolved routes and functions with input from headquarters. "Our plan is full of ground-level information, which we expect the ORR to scrutinise carefully," Higgins explains. "The more we have learnt about our railway, the more we have spotted the casualties of underinvestment in the past. Nevertheless we know we have asked for a lot of money and we will remain committed to delivering improved efficiency as fast as we can."

The government is pushing ahead with the £33bn HS2 project to build a high-speed line from London to Birmingham, Manchester and Leeds, but construction of phase 1 to Birmingham is not due to start until 2017 with completion envisaged in 2026, while phase 2 to Manchester and Leeds is not expected to open until 2033. However, Higgins is coy about whether the project might be accelerated.

"HS2 is a huge endeavour, so although we want to see it delivered as soon as possible, it is vital to properly plan and deliver a railway which gives value for money, has least impact on the environment and is integrated with the existing rail network," he replies.

HS2 will effectively take on the role of the West Coast, Midland and East Coast main lines, and Higgins believes a two-track railway will be sufficient between London and Birmingham. "As our 2009 New Lines Study showed, a new railway line is needed to provide additional capacity for the West Coast Main Line which, if nothing is done, will be full by the mid-2020s, and the best business case is for it to be high speed," he explains.

"However, existing lines will remain and they will receive an uplift in capacity once most long-distance services are transferred to the high-speed line. The decision for a two or four-track high-speed railway rests with the government. However, the cost rises significantly when building a new four-track railway, particularly the cost of junctions, stations, bridges and tunnels. A two-track railway can provide the required capacity between London and Birmingham for the long term. And then another two-track railway from Birmingham to Manchester and Leeds would benefit passengers and the economy far more than a four-track railway to Birmingham alone."

I concluded by asked Higgins what he regards as the greatest challenges facing NR. "Our top priority will always be safety - we have a proud safety record, but we must never be complacent," he replies. "After safety, one of the biggest challenges we face is attracting and retaining the right people. The success of NR is entirely built on the skills and dedication of our staff. We need to show that we are a truly open and diverse organisation, which welcomes new ideas and innovation.

"We need to demonstrate our commitment to delivering excellent value for money for the taxpayer and customer. We need to show that we will invest in our people and develop their skills. And we need to do so in a highly competitive market - drawing largely from peers in the private sector."

Clearly NR has a lot on its plate and the task is likely to get tougher as rail traffic growth demands ever more capacity and customers and taxpayers demand ever greater efficiency and reliability. But this will be far more rewarding than the alternative, of decline and retrenchment.

Network Rail jargon-buster

NETWORK Rail divides its spending periods into five-year Control Periods (CP). CP3 covers April 1 2004 to March 31 2009, which means NR is currently in CP4 which started in April 1 2009 and ends in March 31 2014. The next period is CP5 which will run from April 1 2014 to March 31 2019.

NR is divided into 10 "routes" which are actually geographic areas each covering part of the 32,000km network. There are eight routes in England plus one each for Wales and Scotland. The routes broadly mirror the larger passenger franchises.

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