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Monday, 23 October, 2000, 07:15 GMT 08:15 UK
Review aims to put investment on track
The scene of the Hatfield rail crash
The Hatfield crash has put investment in the spotlight
By Giles Edwards of BBC Analysis and Research

The report from the rail regulator Tom Winsor sets the financial framework for the rail industry for the next five years.

It will affect train companies' ability to run new train services, how much Railtrack can afford to invest in the infrastructure, and even determine how much profit the company can make.

Because of the way the railways were privatised, the relationships between the different companies are very complicated, so the review has been long in coming and will be very controversial.

John Prescott on BBC1's Breakfast with Frost
Deputy PM John Prescott hinted the review will give Railtrack greater flexibility
At the centre of the melée is Railtrack. By far the largest and most important company involved, it owns all the track, signalling equipment, and the stations across the entire network. Collectively, these are known as Railtrack's Asset Base.

The second tier is composed of the 25 Train Operating Companies, such as Connex and Virgin, which run train services. They pay track access charges to Railtrack for the use of its infrastructure.

Railtrack needs to earn a certain amount of money to pay for new investment, and is allowed to make a certain profit on its asset base. Some of this it will make from commercial development of its stations and other land, but the vast majority will come from track access charges.

It is setting these charges which is the most important part of the regulator's review.

Long-winded

He will set them after he has decided how big Railtrack's asset base is, and how much investment the company is likely to make in the next five years. He will also set tough new efficiency and operating targets which Railtrack must meet if it is to avoid big fines.

This has been a long-winded and complicated process - it started as long ago as 1997. But perhaps the most significant factor behind it has been the dramatic turn-around in the fortunes of the rail industry since privatisation.

The structures that were put in place at privatisation were essentially designed to manage an industry in decline, but since then there has been a surge in passenger numbers. This has put pressure on the rail network, and pressure on the government to find more money to help.

This it has done, committing to £26bn of rail spending over the next decade. Railtrack's Network Management Statement, published earlier this year, indicated where it wants to spend money, and both the regulator and the new Strategic Rail Authority will be keeping a close eye on the company to make sure it spends its new money wisely.

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See also:

22 Oct 00 | UK
Hatfield victims remembered
20 Oct 00 | UK Politics
Tories admit rail privatisation errors
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