Rail 654: Rocky times ahead for Network Rail

There are, apparently, three people on the short list to replace Iain Coucher as chief executive of Network Rail. They may, however, all be disappointed or, at best, find themselves in a completely different job from the one carried out by the overly-acquistive Mr Coucher as it has become clear that Network Rail as currently structured is not long for this world.

 Network Rail faces something between dismemberment and death. That ghastly managerial slogan, ‘doing nothing is not an option’ now reflects the reality. Barely a decade after the creation of Network Rail out of the ashes of Railtrack, we are yet again looking at a fundamental upheaval of the industry involving its infrastructure provider.

 Network Rail has only itself to blame although Gordon Brown must take a share of the responsibility for having created a flawed model at the outset. It was he who insisted that Network Rail should be technically in the private sector, even though its money came largely from the government. Since it does not have an equity base, and its regulator showed all the effectiveness of a feather duster on muddy football boots, Network Rail became a law unto itself. As Lord Berkeley, chairman of the Railfreight Group put it brilliantly in a recent article, ‘Network Rail is a company technically in the private sector, but with ineffective corporate governance; no shareholders, around 100 ‘members’ effectively selected by the company and with few powers to hold the company to account… So the company appears to be somewhat out of control, choosing to operate in the private sector when it comes to bonuses, but with no shareholder pressure, nobody to hold the company effectively to account, and little sensitivity to the communities and taxpayers who largely fund it.’

 Network Rail might have been able to overcome this situation had it been cannier. For example, it could have ceded control over the appointment of the so called ‘members’ who are supposed to hold it to account. It could have shown more sensivity to the train operators over matters like weekend engineering. Most important, though, its directors should have realised that its future would always be in the hands of the government of the day.

 Andrew Adonis, the former transport secretary, admitted to me after he left office that he had rather ignored the problems of Network Rail in order to concentrate on franchises and other aspects of the railway. But Network Rail’s bosses should have known that the incoming government led by the Tories was going to take a much closer interest in its affairs, especially given the huge subsidy it is receiving at a time of austerity.

 It was the bonuses that were the final straw. To keep on paying these exhorbitant amounts, using the excuse that they are subject to scrutiny by a supposedly independent committee rather than realising that the times had changed, was an act of crass stupidity on their behalf. Perhaps they did not care, having made so much money that they hardly ever need to work again.  Or pehaps they were naïve, in the same way that a decade ago Railtrack’s directors committed collective corporate suicide when they decided to pay a dividend despite incuring losses of more than £500m because of the panic caused by the Hatfield derailment.

 Whatever their reasoning, it was wrong. Very wrong. Look at the tone of the letter sent recently by Theresa Villiers, the rail minister, to Lord Berkeley in which she says ‘As both the Secretary of State and I have noted, the [bonus] awards were extremely disappointing as not only were they ill-suited to the current climate on public expenditure, but they also looked curious in light of the ORR’s assessment of the company’s performance in 2009/10.’

 As I mentioned in my previous column, Network Rail used to pay a woman called Victoria Pender, a close business association of Mr Coucher’s, £215,000 per year to advise on its government relations. It was clearly not money well spent. Rule number one of organisations in receipt of government cash: do not p*ss off ministers.

 So what are options: privatisation, nationalisation, break up or a change in the nature of the organisation? Privatisation is just a non-runner, despite the musings of Tom Winsor, the former regulator, whose strange views on economics leads him to think it could be sold for £12bn, not a view shared by many in the industry. Nationalisation is certainly a possibility. It might be strange that a Tory led government would nationalised Network Rail but it would only in effect be recognising reality. In a speech Ms Villiers made in July, she said: ‘we are carefully considering the best options for reform at Network Rail….unlike our predecessors we will not be driven by tortuous attempts to keep Network Rail off the nation’s balance sheet’.

 However, since then the favoured option – or at least the one that is being tested by selective leaks to the media – has become some kind of  dismemberement of Network Rail into smaller regional organisations. The details are unclear. Would it be the old regions of British Rail, or would it be broken up along the more numerous Route directorships of Network Rail, or even along the sectors – Network Southeast, etc – created by British Rail or some complex combination. Even thinking about it is migraine territory but the detail is all important.

 In fact, I am not sure I see the advantages of breaking it up unless there is a longer term plan to begin to reintegrate the industry. Any other advantages seem minor. Yes, it would provide some comparability over the costs of doing the same work in different parts of the country, but there are so many factors involved – location, condition of assets, local labour rates, contractors bids – that meaningful comparisons might prove as difficult as in today’s railway. .

 A move to regionalising Network Rail would, therefore, certainly suggest that vertical integration, which as any fule know, is the only efficient way of running a railway and is the model favoured by all the best railways in the world, is the ultimate goal. A discussion paper just issued by the Association of Train Operating Companies, suggests that bids for the Essex Thameside and Greater Anglia franchises could include options for vertical integration. Oddly, that is almost a reversion to the position of the Tory government in the White Paper on privatisation issued soon after its 1992 election which suggested there could be some vertical integration.

 There will be no shortage of opponents. Network Rail has long set its face against even allowing the small Merseyrail franchise to take control of its own tracks, and the freight operators argue that unified franchisees would discriminate against their trains, even if the powers of the regulator were beefed up. Nevertheless, the break up of Network Rail would undoubtedly strengthen the case for vertical integration trials.

 Lord Berkeley consequently has an alternative idea. He is suggesting that Network Rail should be formed into a mutual like the National Health Trusts with a much stronger governing board, elected from various stakeholder groups with most, 60 per cent, coming from passenger organisations and freight users. They would not have any involvement in day to day running of the organisation but, unlike the current group of members, would have the right to appoint the chief executive and the chairman and their remuneration, and give strategic guidance to the board. Of course, there is nothing to stop a combination of both of these ideas – indeed, as I wrote in Rail 646, there is an idea to let franchises be taken over by cooperative organisations. Why not put the whole lot together in a John Lewis type consortium and call it British Railways? Ooops, sorry, that was a slip of the keyboard.

 We should probably get an inkling of the government’s plans in the spending review announcement on October 20 or soon afterwards. Whatever happens, those three people on the short list should make sure they do not commit themselves too soon to a job that might never materialise. Network Rail may not be quite dead, but it is on the critical list.

National rail enquiries madness

I love the online National Rail Enquiry Service, but it is replete with idiocies that could be ironed out by a bit of ‘engaging brain’ on the part of its managers. This is especially the case when you know more than the program thinks you ought to.  For example, if you put in St Pancras and a destination in the east Midlands, it then tells you there is an error, and offers you St Pancras International as the default. You then press enter and bizarrely it says you have to change to get to Leicester. That’s because the station for trains to Leicester is St Pancras Domestic, a moniker I have never actually seen used anywhere else. Moreover, according to the timetable, the change between International and Domestic would take 16 minutes when actually it is up an escalator and about 100 yards.

 But of course, International was not where I was starting from. This ‘International’ business really needs to be sorted out. Why does one have to type in London St Pancras rather than St Pancras since there are no other stations of that name probably in the world (Pancras was a very obscure saint who was beheaded by the Romans in 304 aged just 14). Oddly, by typing in just ‘London’, one is offered the right information.

 Then, if you go to the East Midlands Trains website, the station it lists is St Pancras International and we are also constantly told by the PA system on the Kent domestic trains that ‘this train is for St Pancras International’ So what on earth should we call the vast Victorian Gothic station next to Kings Cross? This is one of the minor results of the fragmentation of the industry that could be dealt with if there were some type of overall coordinating body for the railways, something that is desperately needed for all kinds of reasons. For the time being, though, let’s settle on calling it St Pancras, shall we?

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