NETWORK RAIL has signalled its acceptance of the Office of Rail Regulation's determination of its budget for the next five year Control Period, which starts in April.

The ORR had calculated last autumn that the company, which becomes a public sector body in September, needs a total budget of almost £38.3 billion for Control Period 5 -- some £1.8 billion less than Network Rail had said it would require in its Strategic Business Plan. The ORR conceded that Network Rail is now facing some 'tough challenges', but said that it would also be carrying out some 'exciting plans'.

The reduction in total expenditure proposed by the ORR had threatened to pose a sticking point. The ORR told Network Rail that the savings could be made by greater efficiencies, particularly when carrying out maintenance. Other, less significant factors have included a drop in the price of electricity for traction current since the Business Plan was submitted.

Network Rail's performance must also improve between now and 2019, reducing the number of delays or cancellations caused by infrastructure failures, although the ORR has reduced the required level of PPM in England and Wales for the first three years, for example from 92.2 per cent to 91.9 per cent in 2014-15, while maintaining the end of period requirement of 92.5 per cent by 2019. The ORR said 'this reduction reflects recent performance being below forecast, affecting what can be realistically delivered in the early years of CP5'.

In round figures, the performance improvements must amount to reductions in delays of 8 per cent for passengers and 17 per cent for freight in 2019 compared with 2014, supported by an extension of funding for 'seven day railway' projects which avoid major weekend closures.

Some £17 billion will be needed for maintenance and renewals, while a further £12 billion will be needed for major enhancements, particularly large-scale electrification projects which include the Great Western and Midland Main Lines.

Borrowings secured on the railway estate -- known as the Regulatory Asset Base -- will rise substantially during CP5, reaching 69.8 per cent of the RAB by 2019. The ORR commented: "Although debt levels will rise, this will be manageable for the company as the value of Network Rail‟s assets (the RAB) will also rise. The debt to RAB ratio will increase but at these levels the company would, everything else being equal, have an investment grade credit rating similar to other utility companies."

ORR chief executive Richard Price said: “Network Rail has committed to the challenge of delivering exciting plans for Britain’s railways between 2014 and 2019. This new phase will see Network Rail enhance safety, increase capacity, and improve the performance and resilience of the rail network. Service standards will get better, as stations up and down the country are modernised and lines are electrified. Alongside this work, the company will also deliver more, pound-for-pound, than ever before, as it utilises new technology and better ways of working.

“We welcome Network Rail’s recognition that it will need to do things differently to fully deliver. This is a fresh start for the company and an opportunity -- supported by significant levels of funding by governments and passengers, and working with the rest of the industry -- to learn lessons and build on successes from the past. Meeting these challenges will be tough, particularly in the early years for punctuality in England and Wales because of recent performance levels.”

Outgoing chief executive David Higgins, who takes over at HS2 at the end of the month, said: “The railway is a complex, long-term, critical element of Britain’s infrastructure and we were clear in the development of our plans that we would need to do some things very differently in CP5 if we are to be successful in meeting the new challenges that we face. We remain committed to continuing with these changes.

“Together with the ORR, we are determined to continue our drive to improve safety. Fundamental to this will be on-going improvements to our safety culture and how we manage our assets. By achieving this we can also deliver on-going efficiency savings and improve the reliability of train services, but getting the balance right between running more trains and improving punctuality will be a major challenge,”

“We are disappointed that we will start CP5 at a lower level of performance than was assumed at the time of the Final Determination. This is partly because of the weather but we also recognise our responsibility for the missed targets. We can still meet the targets for the end of the control period. Although we cannot do so as quickly as assumed or in all weather, we will work with operators to improve performance as fast as possible.”

Network Rail's acceptance of the ORR determination is the last legal step required for the CP5 budget to be confirmed.