Network Rail: Debt-ridden train operator’s Middle East contract is its biggest coup yet

In its biggest contract to date, Network Rail Consulting, which helps governments to manage their rail construction projects, has been made the preferred bidder for a contract with the Saudi Railway Company

(PA)

Network Rail will help a new Saudi Arabian railway to run on time in a deal worth nearly £100m. It marks a major advance in attempts to commercialise the debt-ridden railway operator.

The Government had been keen to see the independent but state-backed rail operator find alternative sources of revenue to ease the more than £30bn debt it had racked-up in maintaining and running 20,000 miles of Britain’s track, 32,000 bridges and tunnels, and 19 major stations, including Glasgow Central, Liverpool Lime Street and London Waterloo.

Last month, Network Rail was nationalised, in effect, when this debt was shifted on to the Treasury’s books. This month, the Office of Rail Regulation warned that the track operator was failing to be “sufficiently transparent” in its financial reporting.

Network Rail’s consultancy arm was established in 2012 to take advantage of its in-house experts and win lucrative international advisory work to help reduce costs. Sir David Higgins, its then chief executive, said at its launch that the consultancy division would be a “national champion” and “become a valuable international ambassador” for the UK rail industry.

In its biggest contract to date, Network Rail Consulting, which helps governments to manage their rail construction projects, has been made the preferred bidder for a contract with the Saudi Railway Company, in a deal worth between £50m-£100m. This dwarfs the previous record of around £15m for advisory work on a 23-mile track in New South Wales, Australia.

The Saudi Railway Company is behind the biggest railway in the world currently under construction. As well as stretching for 1,708 miles, the North-South Railway will have 148 bridges, 17 of which are being built over valleys. The £3.3bn railway is intended to develop Saudi Arabia’s economy and will include freight services and passenger trains.

Because the deal is worth more than £50m, it requires the approval of Network Rail’s chief executive, Mark Carne, as well as the consulting arm’s board, led by managing director Nigel Ash. The final agreement is expected to be in place and signed off by the end of the year.

A Network Rail spokesman confirmed that it had been made preferred bidder “for a consulting contract in the Middle East”, but declined to give more details due to “confidentiality conflicts”.

The new contract comes as the Government described its move to take responsibility of Network Rail’s debts as a “reclassification” to meet European accounting rules.

This means that the group’s debt burden is added to the country’s balance sheet and government ministers will have to approve the business cases behind Network Rail’s biggest decisions. It will also have a greater say on who sits on its board.

Network Rail has just set out its latest five-year-plan for Britain, which includes spending £38bn on projects such as running up to 700 extra trains between large northern cities, electrifying 850 miles of track and upgrading Birmingham New Street and Manchester Victoria stations.