Cost of Replacing Network Rail!

Cost of Replacing Network Rail!

Network Rail is an arm’s length public body of the Department for Transport and, as such, is an asset that needs to be valued in DfT’s accounts. To calculate its financial value, Network Rail has developed a Depreciated Replacement Cost (DRC) model which estimates the cost of replacing its assets with their modern equivalents and adjusting the value to reflect the condition and capacity of the current network. The sums involved are enormous; in its 2018/19 accounts, DfT declared that the depreciated replacement cost for the mainline rail network was £329 billion.

In addition to performing value for money reviews of government initiatives, the National Audit Office (NAO) conducts financial audits of the accounts presented by government departments, including the DfT. In April 2019, the NAO appointed Frazer Nash Consultancy (FNC) to provide technical support to its audit of Network Rail’s DRC model and our role, as part of FNC’s team, was to review the assumptions for ‘built assets’ (i.e. earthworks, bridges, track, stations, depots and other buildings). Our review raised a number of questions about Network Rail’s valuation, such as how many level crossings would be replaced by overbridges and the cost of replacing tunnels, but these were all resolved and the valuation was accepted – albeit with some proposed changes to the methodology for future valuations.