Network Rail a not for profit company - Essay Example

Network Rail – a not for profit company Contents Contents 0 Introduction 2.Network Rail vs. Public & Private 3 3.Network Rail Vs Railtrack 8 4.Efficiency in Public and Private Sector 10 5.Conclusion 11 6.Bibliography 13 1. Introduction The privatization of British Network Rail was the outcome of the “Railways Act 1993” legislated in the governing session of “John Majors” conservative regime. In the year 1991, the European Union formulated “EU Directive 91/440” in array to facilitate the admittance of novel players in the market. This act directed all EU affiliate states to split “the administration of railway maneuver and network from the stipulation of railway carrying services, partition of accounts being obligatory and managerial division being discretionary.” (Parliament, Delivering a Sustainable Railway: A 30-year Strategy for the Railways?, 2008) The main motive was that the “track operator” could charge the train operator irrespective of public or privatized with a translucent and reasonable fee against utilization of its network. The “Directive 91/440” was primarily only an accounting way of assuring an echelon playing-field for serving rail operators and novel businesses inflowing the market of rail transportation. (Green, 1997) Though, “Directive 91/440” presented the British regime with an explanation for hauling away a faraway added theatrical restructuring of the railway business whereas at the same occasion being capable to offer on a number of “opprobrium” to other European states. As per the amendment of the Railways Act 1993, it was anticipated that the introduction of private players. Some of the anticipations from the privatization are: (Transport, Railway Reform: Regulation of Freight Transport Markets, 2001) Superior Consumer Service Quality: Rail privatization was intended to develop patron service. It is undeniable fact that the rail lines and platform services had improved since the introduction of private affiliates in the British rail network. Rail Fares and Time-table – It is intended to reasonably trim the fares and reschedule the existing time table. Novel Trains – It had been projected that the “ROSCO’s” would contend against each other to offer the “TOC’s” through the rolling stock as requisite. Reliability and Consistency – It is anticipated at the time that the new players in array to boost their business enhance the consistency and reliabilities of the British rail however, they had proven it a myth. Security – The passenger and load protection measures had seen a new height as intended. Funding: Privatization was intended to permit borrowing in array to sponsor venture and eradicate the short-term constrictions of “Treasury account” from the railways. (Transport, Railway Reform: Regulation of Freight Transport Markets, 2001) Profitability and Efficiency: It was anticipated that privatization could enhance the deliverance of quality in a more professional manner due to the revenue interests of private players. Political Control: It was anticipated that post privatization, it would eliminate railways from temporary political reins. During 90’s, Competition was at the core of the “British railways reforms” and it was contested in an astonishing number of proportions: for travelers, for agreements to operate trains, for cargo patrons, for employment, for stipulation of rolling stock and for proviso of engineering services. (Transport, Railway Reform: Regulation of Freight Transport Markets, 2001) The composition was deliberated to facilitate antagonism to perform successfully at all of these stages. This paper furthermore highlights the extent to which the Network Rail, a not for dividend private company have been able to resolve the problems of financing and managing the national railway infrastructure as compared to both public and conventional (for profit) private ownership and compare Network Rail’s performance with regard to usage, investment, punctuality, complaints and overcrowding with Rail-track’s performance. This paper hereby evaluate and discuss the degree to which performance in these areas has improved under Network Rail’s stewardship and how Network Rail’s governance structure as a not for dividend private company provide accountability to the public for taxpayers’ money and impact of its corporate structure on “not for profit companies” that deliver public services in other countries. 2. Network Rail vs. Public & Private Network Rail is a corporation limited by guarantee; it is a private segment business in service as a viable trade comprising a “plc-style” panel of directors except like other limited companies it doesn’t includes shareholders. (Parliament, Network Rail: Making a Fresh Start: Twenty-eighth Report of Session 2004-05, 2005) The Network Rail associates perform the responsibility of shareholders but in return they are not eligible for receiving any sort of benefits in the form of surplus or share capital. It is due to the fact that the business model of Network Rail is a “not-for-dividend company” and revenues earned are re-invested for the development of Britain’s railway. (Flynn, 2007) As of today, Network Rail have possession and maneuver the railway transportation of Great Britain and is accountable for its upholding & refurbishment, the rejuvenation of tracks, stations, indicators and electrical apparatus and for assisting the development of the system. (Transport, Competitive Tendering of Rail Services, 2007) Train on the track network are derived via a number of train operating companies bounded by agreements with Network Rail to utilize its railway in the appearance of admittance contracts agreed by the “Office of Rail Regulation.” (www.rail-reg.gov.uk) Today, the Network Rail provide work for over 32,000 citizens and have possession of and preserves 22,000 miles long rail tracks across Britain. Post collapse of Railtrack, the Network Rail began its operations on Mar 22, 2002. Network Rail Ltd initiated trading on Oct 3, 2002 as the vendor and operative of the Britain’s railways with a configuration that is atypical and still distinctive. (www.rail-reg.gov.uk) Conventionally, the Railtrack outsourced a hefty number of maintenance staff mostly to civil engineering firms working in the construction sector. Railtrack’s novel loom to retain its infrastructure was extensively disparaged, the added so after a quantity of soaring outline maintenance-related mishaps specifically at “Hatfield in October 2000” and at “Potters Bar in May 2002.” (Gómez-Ibáñez, 2006) The government after that determined to launch “Network Rail, a not-for-profit mutual company”, as a substitute for Railtrack. One of the earliest verdicts Network Rail completed was to acquire back the repairs of the “London-to-Reading section in-house.” In a small number of months, Network Rail determined to in-source every upholding across the entire rail network and to re-recruit the employees allied with the same. (Flynn, 2007) Network Rail is sponsored by the “Department for Transport and Transport Scotland.” The phase of financial support is to be reviewed every five year and is termed as a “control period.” (Parliament, Delivering a Sustainable Railway: A 30-year Strategy for the Railways?, 2008) The funding agencies are conscientious for setting their requisite terms meant for sorting of output they desire from the railways. The Department for Transport and Transport Scotland are two main lenders of Network Rail. Network Rail also earns revenue all the way through the fares box by providing admittance to the train operative to utilize its railway network. In accumulation Network Rail spawns noteworthy returns from its assets portfolio. Network Rail’s primary funding medium is “Network Rail Infrastructure Finance PLC” (NRIF), a unique rationale financing company acting as the issuer in “Network Rail’s Debt Issuance Program” (DIP) and is not an associate of the company though for bookkeeping reasons NRIF is delighted as a auxiliary in the combined financial records of Network Rail Infrastructure Limited whereas, the Railtrack company had not implemented any sort of debt management programs to recover and manage the infrastructure which lead to its failure. (Parliament, Network Rail: Making a Fresh Start: Twenty-eighth Report of Session 2004-05, 2005) The DIP is backed by a fiscal guarantee from the “Secretary of State for Transport” ending in the year 2052. As in 2007, all Network Rail’s liabilities assembling beneath the DIP other than £4.8bn corresponding of average tenure notes which lie in “Network Rail MTN Finance PLC.” Inside the DIP is a £20bn guarantee program which has been vastly rated i.e. “AAA by Standard and Poor’s, AAA by Moody’s and AAA by Fitch.” (Parliament, Delivering a Sustainable Railway: A 30-year Strategy for the Railways?, 2008) The DIP permits access, all the way through a sole platform to the widest feasible resource of subsidy at the minimum achievable cost, counting the extensive term investment markets. This bestows Network Rail a steady foundation for backing an enduring program of long-term outlay in the nationalized rail network. The network Rail had concentrated its operating costs while enhancing effectiveness and security. By captivating repairs in-house the company had attained enormous efficiencies i.e. £200 million which is due to its business model again circulated in the railways for the betterment of the nationalized railways. (Flynn, 2007) The company claims that it is in way to congregate the effectiveness goal of 32% by the year ending of 2009. Due to the better policies, the company is successful to boost the train recital at an 11 year towering with 88.9% of trains running on schedule and traveler statistics in surplus of 1 billion for each fiscal year and there is a noteworthy down in accident frequencies by 53% as compared to a high accident rate of previous private companies. (www.networkrail.co.uk) Source: Network Rail In the era of Railtrack, due to its lack of vision for the maintenance of tracks, the instances of busted rails on Railtrack had continued roughly stable at an approximation of 768/year and a typical digression of 128/year. The statistics of 952 breaks during the fiscal year 1998-99 and during 1999-00 reported instances of 918 smashes symbolize boost of 1.46 and 1.19 typical variations correspondingly in excess of the 30 year average. (Parliament, Network Rail: Making a Fresh Start: Twenty-eighth Report of Session 2004-05, 2005) During the era of Railtrack the United Kingdom witnessed a black historical era for railways with the figures of imperfect rails detached per year had amplified approximately linearly from about 1,250 in the year 1969 to an approximate of 8,700 in 1999-00 which is around 600 % increase. (Alan Rushton, 2006) In comparison to the lack of funding that was faced by its precedents i.e. public and private companies the network rail develops a no profit based business model. According to which there are no shareholders in the company and no profit of the company is to be distributed among the directors or anyone. (Parliament, Network Rail: Making a Fresh Start: Twenty-eighth Report of Session 2004-05, 2005) All the profit to be earned is to be invested again in the company to expand its network and provide better services. However, the staff and directors of company are entitled to the regular salaries against the services they offer. Below given is an illustration of investment in the railways over the past years by public and private players. Source: www.igreens.org.uk The main problem faced by the Network Rail in its starting days were to develop and reinstate the confidence of travelers, reduce costs and provide the ease of comfort and high quality services to recover the debts that were passed to it by the Railtrack. In array to motivate the new train operators to use its tracks the company initially resolved the issues of maintenance and developed in-house facilities to maintain and repair the flaws in time. In UK, the overheads requisite for Network Rail for every TOC to accomplish examine levels set up by SRA are deliberately estimated and right to use charges biased on this total are further exercised. In supplementary terms, right of entry charges in United Kingdom is the overall expenditure essential by Network Rail for achieving the service level required following by the TOC. In accumulation, the SRA decide the monetary aid to the TOC to facilitate it to envelop the track right to use charges it must pay. Therefore, the track right to use charges in Britain are in actuality a sort of grant in which the government pays Network Rail circuitously throughout the TOC’s. 3. Network Rail Vs Railtrack In early Oct 2002, “Railtrack”, the corporation that controlled UK’s rail transportation was placed into supervision. Network Rail subsequently acquired Railtrack. Network rail is a non-profit trust, supported by government security where returns are reinvested instead of distributing. Industry experts established that the chances of Network Rail to succeed as compared to Railtrack are much more due to Railtrack asserts that it had, “no hope” to raise the funds as required to compensate for the intended development of the railways. (Gómez-Ibáñez, 2006) In terms of organization and configuration, there are fundamentally no disparities among the duo companies. The major dissimilarity is that Railtrack apprehended raising earnings as its key assignment while Network Rail is paying attention on continuance operations as resolute by the government and SRA. In accumulation, the real upholding of the infrastructure that was contract out under Railtrack is at the present completed unswervingly by Network Rail which has played a major part in elevating the performance and reduce costs. In the year 2003-04, the Office of Rail Regulation set a target for network rail to improvise the infrastructure reliability by at least 30% by 2008-09. Due to its rapid progression policies and constant funding, the company had met its goals in 2007-08 i.e. one year earlier by 35%. (www.networkrail.co.uk) During the phase of Railtrack, the total of delay minutes were 14.72 million minutes per annum which was reduced in the operating period of network rail to a record breaking 9.5 million minutes per annum. As per the office of Rail Regulation, the company had spent an approximate of £650m on development plans during 2008-09, increasing the focus from £400m in precedent fiscal year. It is also reported that the firm overspent £64m on its enhancement. The ORR also revealed that they are concerned with the level of dissatisfaction spreading amid the rail operators. (www.rail-reg.gov.uk) Source: www.networkrail.co.uk The overall growth of a firm depends on its availability of funds, on one hand there was Railtrack which struggled all its life span managing its funds and on other hand there is network rail which is using a unique business model and emerged as a “no profit organization” to arrange its funds and enjoying facilities of governmental subsidies. 4. Efficiency in Public and Private Sector It is extensively assumed that the private sector is “obviously” more competent than the communal sector. It is believed that private corporations have confirmed their supremacy in recital and that this imitates the tentatively anticipated pre-eminence of marketplace over officialdom under political power. On the base of these postulations, a lot of contemporary discussion regarding to infrastructure procedure and services presumes that attaining private sector maneuver is a goal in itself and delivers at all times an enviable result. (Erridge, 2001) An extra explicit postulation about privatization is that the Britain which initiated large-scale privatization under “Mrs. Thatcher” practiced a noteworthy efficiency increase as a consequence. Privatization of UK railways is evidence in itself that the efficiencies and performances have been better since its conversion as compared to when it was controlled by the government. (Erridge, 2001) Above graph illustrates the increasing number of private sector’s participation in the country’s employment choice. More graduates and professionals now prefer private sectors due to increasing glamour, perks and benefits. In 2004, the private sector in United Kingdom comprises of 79.8% of total employment while rest of civil services contains only 20.1%. (www.rail-reg.gov.uk) 5. Conclusion The United Kingdom’s knowledge exemplify that mutually the fiscal and the political overheads of foremost structural improvement, in array to engage viable forces and private ownership into formerly nationalized railways are prone to be massive. But the outlay to the civic reward of railways is also huge. Competition, if permitted to be effectual, might proffer a lot more than adequate gain to compensate the overheads of initiating it. (Parliament, Network Rail: Making a Fresh Start: Twenty-eighth Report of Session 2004-05, 2005) Questionably this is verified quite a lot of times through the privatization of the additional most important British utilities. Unluckily, the incident with railways might also demonstrate the likelihood of finishing up with the most awful of all worlds i.e. to sustain the outlay of privatization in array to control the forces of contest but afterward to intercede to avert that contest from distributing its remunerations and to ending up paying private risk-bearing charge of interest on huge amount outstanding devoid of realizing any sort of actual risk reassign from the communal sector. This paper had highlighted the pros and cons of the privatization of British Railways and provides an understanding of the accomplishments of Network Rail Company in comparison to its predecessors. 6. Bibliography Alan Rushton, P. C. (2006). The Handbook of Logistics and Distribution Management. Kogan Page Publishers. Erridge, A. (2001). Best Practice Procurement: Public and Private Sector Perspectives. Gower Publishing Ltd. Flynn, N. (2007). Public Sector Management. SAGE. Gómez-Ibáñez, J. A. (2006). Competition in the Railway Industry: An International Comparative Analysis. Edward Elgar Publishing. Green, N. (1997). Commercial Agreements and Competition Law: Practice and Procedure in the UK and EC. Kluwer Law International. Parliament, G. B. (2008). Delivering a Sustainable Railway: A 30-year Strategy for the Railways? The Stationery Office. Parliament, G. B. (2005). Network Rail: Making a Fresh Start: Twenty-eighth Report of Session 2004-05. The Stationery Office. Transport, E. C. (2007). Competitive Tendering of Rail Services. OECD Publishing. Transport, E. C. (2001). Railway Reform: Regulation of Freight Transport Markets. OECD Publishing. www.networkrail.co.uk. (n.d.). www.rail-reg.gov.uk. (n.d.). Read More