November 26, 2009 11:08 pm

Network Rail cuts operating costs

The company that runs Britain’s mainline rail infrastructure has cut operating costs compared with last year, in the first sign that it is on target to meet tough regulatory targets for the five years to 2014.

Network Rail’s operating costs were £142m lower in the six months to September 30 than in the same period of 2008, according to figures released on Thursday. The figures are the first for the company’s present regulatory period, which started on April 1 and during which it has to find a cumulative £4.1bn of efficiency savings compared with 2004-09.

Operating costs are a vital issue for the railways because costs grew so fast earlier this decade, after the fatal Hatfield crash of October 2000 created panic about the state of the network and a rush to replace worn-out assets. At its peak, the increased costs meant the government, rather than passengers or freight users, was paying half the system’s costs.

The Office of Rail Regulation has said Network Rail must cut its unit costs – the cost of carrying out a set amount of work – by 21 per cent in the 2009-14 period, after it cut costs by 27 per cent between 2004 and 2009 . The company was currently slightly ahead of the schedule set by regulators, it said.

Iain Coucher, chief executive, said the savings resulted from investments made two to three years ago as the company realised it was not cutting costs as fast as it intended in track work.

“We made big investments in plant and machinery, allowing us to take jobs out,” he said. “These investments are starting to feed through in real reductions in unit costs.”

The cost savings were achieved despite a fall in revenue and an increase in the number of trains running. Revenues fell almost 9 per cent to £2.84bn after income from train operators fell £274m compared with the first half last year. Regulators now allow Network Rail to collect less from train operators than previously. Train operators ran 3,000 trains a week more in the first half this year, largely thanks to the introduction of a new, more intensive timetable on the London to Glasgow west coast main line.

The company made post-tax profits of £99m compared with just £5m for the same period last year. Network Rail, which has no shareholders and is backed by a government guarantee, reinvests all its profits in the rail industry.

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