ON MAY 24 Railtrack released preliminary results for the year ended March 31 2001. These were bad enough, with the previous year’s £360m profit replaced by a £543m loss. This was mainly due to £561m in extra penalty payments to train operators after the Hatfield derailment on October 17 2000, but also to the cost of replacing 800 km of rail plus 1100 switches or crossings in which gauge corner cracks were found.
Hatfield might have been accepted by investors as an isolated incident had the results not been accompanied by a 29% uplift in the amount of income that Railtrack now says it needs simply to operate, maintain and renew the infrastructure during Control Period 2, the five years to April 1 2006.
As recently as January 15, Railtrack had formally accepted the Rail Regulator’s determination of charges for CP2 on the understanding that the government would bring forward £1·5bn in grants to reduce the company’s borrowing requirement. This was agreed on April 2, when Railtrack said that although the CP2 determination was ’extremely challenging’, the company ’need not now approach the Regulator for an interim review of its financeability.’
But on May 24, Railtrack revealed a business plan showing that it now expected to be £3·6bn short of the income needed to sustain the infrastructure during CP2. Technical Director Richard Middleton estimated that ’around £2bn is a direct consequence of better knowledge of the condition of the assets post-Hatfield.’ The company says it will ask the Regulator next year to review his CP2 decision.
It had been hoped in some quarters, prior to breaking up British Rail, that putting all infrastructure work out to competitive tender might reduce costs by as much as 30%. Railtrack’s latest estimates for CP2 shows maintenance costs 20% higher than actual spending in CP1, the five years commencing on April 1 1996 just before Railtrack was privatised. Operating expenses are now 32% higher, and renewals 41% higher. Railtrack blames this on rising traffic following decades of under-investment by BR.
Major projects in trouble
Another major shock for investors has been Railtrack’s decision that it cannot continue to fund and manage major projects. With serious worries about its ability to raise more debt, now that the share price has fallen from a high of over £17 in 1998 to well under £4 last month, Chief Executive Steve Marshall has made it very clear that funding for new projects will have to come from elsewhere. In April, Railtrack surrendered its right to finance and manage Section 2 of the Channel Tunnel Rail Link (RG 5.01 p295).
This leaves Railtrack still responsible for what are now called ’legacy projects’, notably the West Coast Route Modernisation. They are defined as having been ’conceived prior to, or immediately after, privatisation’ when ’the company agreed to undertake these works before the complete project evaluation and scope definition had been tied down in the way it would be today.’
We now learn that ’considerable cost increases’ suffered by legacy projects arise from ’increasing work scope or unsuitable technology being applied to the original specification.’ This doubtless accounts for the December 1999 decision to abandon plans for ETCS Level 3 and renew conventional lineside signalling. Axle counters ordered for this resignalling are now to be replaced by track circuits because of safety fears. And only last month, Railtrack’s board decided to abandon autotransformer feeding at 50 kV despite that fact that pairs of new 25-0-25 kV main transformers are actually being installed at five locations.
Another casualty is the Thameslink 2000 upgrade of the north-south link across London, one of three projects to create an RER network on the Paris model. Due to a cost increase so startling that Marshall has refused to reveal it, Railtrack has effectively handed the scheme over to the Strategic Rail Authority.
By way of an epitaph, in its 2001 Network Management Statement published on May 31 Railtrack records the cost of Thameslink 2000 as a mere £150m. This is the penalty Railtrack will now have to pay the government for reneging on its commitment to fund the project when the company was floated on the stock exchange in May 1996.
Key issues
n ú543m loss in 2000-01
n ú3·6bn short-fall forecast for sustaining network to 2006
n ’Legacy project’ costs underestimated
n West Coast upgrading cut back
n Thameslink 2000 handed back to SRA
