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Watchdog calls for private investment in rail network

By Richard Johnstone | 15 July 2013

The Office for Rail Regulation is urging the government to consider letting private firms take over parts of the UK’s rail infrastructure, in a bid to increase investment in the network.

In its long-term regulatory statement for the railways, the ORR stated that the railways have been ‘a major success story for the past decade’. Passenger numbers were at their highest ever level, and there had been growth in the number of freight journeys.

However, the report warned that this growth made it ‘challenging’ to secure efficiency gains and ensure value-for-money for taxpayers, who subsidise the industry, including track owner Network Rail, by nearly £4bn a year.

The Opportunities & challenges for the railway report highlighted that the industry has a low level of private finance invested in infrastructure compared to sectors, such as water and utilities, with a similar regulatory regime.

‘In other regulated sectors the volume of private investment has been much higher. In water, for example, more than £100bn of private investment has happened since privatisation,’ the report stated.

Both the industry and ministers must therefore determine the extent to which it is viable to develop further sources of private finance to fund investment in infrastructure and reduce dependence on taxpayers, the report stated.

The ORR highlighted the £2.1bn sale of the High Speed 1 line to a consortium of Canadian pension funds as an example of an investment that could be replicated elsewhere in the country. This would be done by allowing private firms to bid to operate lines currently run by government-owned Network Rail.

The Opportunities & challenges for the railway report stated the operation of the rail network is ‘undergoing a period of rapid change’.

Network Rail, which owns and operates the domestic rail lines in the UK, is currently creating a devolved structure so it can enter into local partnerships with train operators across the country, in a bid to cut costs.

Network Rail should also examine the potential of allowing third parties to run parts of the network infrastructure, in a similar way to the concession deal for HS1. Such a move could create ‘alternative models of investment and operation’ and increase investment, the ORR said.

‘This innovation of new approaches is an important trend towards rail becoming a more dynamic and financially self-sustaining industry,’ it added.

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