Debt-laden Network Rail plans sale of power lines to raise £2bn

Acccountants hired to look into deal that would release funds for core track work 

Mark Leftly
Associate business editor
Saturday 05 December 2015 00:43
Network Rail is the country’s biggest energy customer
Network Rail is the country’s biggest energy customer

The “big four” accountancy firm KPMG has been asked to look into selling Network Rail’s electricity assets, which could fetch the indebted state-backed group around £2bn.

The Government wants Network Rail to focus on its main job of repairing, maintaining and running Britain’s creaking Victorian-era railways – 20,000 miles of track, 40,000 bridges and tunnels, and 6,300 level crossings.

Ministers fear the organisation has been distracted by responsibilities such as running a property portfolio and looking after a huge electricity distribution network – Network Rail is the country’s biggest energy customer.

The group has suffered a string of embarrassments over the past 12 months, including chaotic scenes caused by engineering problems at London stations and the delay of two electrification schemes. It also has a debt pile that is expected to hit £50bn by 2020.

Richard Parry-Jones was dumped as chairman this summer in favour of Transport for London commissioner Sir Peter Hendy, who has just completed a review confirming the reorganisation of Network Rail’s latest £38.5bn capital spending programme, known as CP5.

George Osborne confirmed last month that Network Rail would be able to raise additional cash for CP5 by selling parts of its property estate, including retail units in stations and depots. This could fetch around £1.8bn, while the Government has also upped Network Rail’s borrowing limit by £700m.

But some sources believe the energy assets, which include overhead pylons, could be sold for even more, though others are sceptical about the £2bn figure at this early stage of the process.

KPMG has six months to determine how a sale would best be structured. A likely deal is Network Rail’s distribution network being sold to a private investor, energy utility or National Grid, which would then have a guaranteed revenue stream from charging Network Rail for the use of those pylons and cables.

A source close to the group said: “The assets cover thousands of substantial transformers and thousands of miles of cabling.”

Network Rail is also preparing to outsource its telecoms work, which includes passenger wi-fi and the transmission of signalling information to train drivers. An industry source said the bidding process for this work is “in the wings”.

However, Sir Peter warned in his review: “While Network Rail and DfT [the Department for Transport] consider it is right to sell assets to fund enhancements [of capital projects], there are clearly implications for the future funding of the railway. Less income from property means more will have to come from elsewhere.”

A second report, by Dame Colette Bowe, was published alongside Sir Peter’s, concentrating on the lessons that could be learnt from mistakes made in structuring CP5. A third review will recommend how Network Rail should be restructured next year.

A company spokesman said: “We have commissioned a six-month review to evaluate options on how we can engage private sector capital and expertise to further improve the management of our electrical power assets.

“The review will be complete by the spring of 2016.”

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