ANNUAL REPORT Building a world class rail network

Transcription

1 ANNUAL REPORT 2002 Building a world class rail network

2 Our vision is to deliver a world class rail network for the people of New South Wales. PROFILE Rail Infrastructure Corporation (RIC) owns and maintains the New South Wales rail network on behalf of the State Government and provides access to passenger and freight operators. It was established on 1 January 2001 as a statutory State Owned Corporation under the Transport Administration Amendment (Rail Management) Act RIC is an important member of the rail network. Our customer base comprises SRA, Pacific National, regional freight and heritage operators. The Corporation s principal objective is to ensure that the New South Wales rail network enables safe and reliable passenger and freight services to be provided in an efficient, effective and financially responsible manner. Our vision is to deliver a world class rail network for the people of New South Wales. CONTENT 1 OVERVIEW 2 SNAPSHOT OF OUR PERFORMANCE 3 OUR OBJECTIVES 2002/03 4 CHAIRMAN S REPORT 5 CHIEF EXECUTIVE OFFICER S REVIEW 7 MANAGEMENT STRUCTURE 8 REVIEW OF OPERATIONS Building a safer future Building better systems and tools Building reliability Building capacity Building efficiencies and effectiveness Building our commercial business capabilities 18 RAIL MAINTENANCE DEFINITIONS SUMMARY 19 OUR PEOPLE 22 ENVIRONMENT 24 FINANCE 26 CORPORATE GOVERNANCE 28 BOARD OF DIRECTORS 29 FINANCIALS 57 APPENDICES IBC INDEX 30 October 2002 The Hon R J Carr MP The Hon M R Egan, MLC Premier Treasurer Minister for the Arts Minister for State Development Minister for Citizenship Vice President of the Executive Council Level 40 Level 33 Governor Macquarie Tower Governor Macquarie Tower 1 Farrer Place 1 Farrer Place Sydney NSW 2000 Sydney NSW 2000 Dear Premier and Treasurer Rail Infrastructure Corporation 2001/2002 Annual Report We have pleasure in submitting for your information and presentation to Parliament Rail Infrastructure Corporation s Annual Report for the year ended 30 June The Report has been prepared in accordance with the Public Finance and Audit Act 1983, the Annual Reports (Statutory Bodies) Act 1984, and the Annual Reports (Statutory Bodies) Regulation Yours sincerely Rod Sims Chairman John Cowling Chief Executive Officer

3 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Safety is the top priority at RIC for our employees, customers, passengers, and everyone who works within the rail industry. RAIL NETWORK The New South Wales rail network is a complex mix of urban, rural, interstate and heavy haul railways. It consists of 8,700 kilometres of rail track, more than 5,000 rail and road bridges, and a signalling and telecommunications system combining satellite and land-based technology. The Sydney Metropolitan network is Australia s largest. In geographic area, it is one of the largest in the world. It is a unique rail system that carries both passenger traffic and heavy freight and covers 1,760 kilometres of electrified track. Each weekday, the NSW rail network supports almost 1,000,000 passenger journeys and 230,000 tonnes of freight movements. OUR FOCUS Our focus over the first full financial year of operation was to merge RAC and RSA and implement a new business model and management structure that would support the environment in which we operate. At the same time we made a commitment to our customers and stakeholders to quickly improve the long-term safety and reliability of rail infrastructure in New South Wales. In this regard, and with the advantage of increased Government funding, significant gains have been made. The performance of the network has improved and key indicators for safety and reliability show significant improvement. 1

4 SNAPSHOT OF OUR PERFORMANCE 2001/02 Achievements Stage 1 of Safeworking Rules Review Project Work on Track rules implemented and training completed for 3,850 workers. $54 million commitment for new equipment to enhance safety and efficiency. Helped to achieve almost 92% peak on-timerunning on CityRail network: the best performance in several years. Speed restrictions on four main country lines reduced by 55% to the lowest level in 10 years. Completion of: East Hills amplification (Stage 2). Dapto to Kiama electrification project. Duplication of Richmond line between Marayong and Quakers Hill. Dungog-Craven 47 km resleepering project. Tahmoor-Bargo 8 km concrete resleepering project. Stages 2 and 3 of upgrade of Port Botany freight line completed. $606.5 million spent on maintenance. Over $5.5 million invested in staff training and competency development programs resulting in 13,852 employee training days. Establishment of RIC College. Financial Summary for year ended 30 June months 6 months* ended ended 30 June June 2001 $ 000 $ 000 Revenue Access fees from Operators 561, ,951 NSW Government Community Service Obligations 246, ,933 Operator and Department of Transport Funded Capital Projects 160,306 82,417 Other 187,369 88,404 Total Operating Revenue 1,155, ,705 Expenditure Infrastructure maintenance and other 906, ,444 Operator/Government funded capital projects 160, ,165 Network control and communications 77,189 36,520 Total expenditure 1,143, ,129 Profit/(Loss) from Ordinary Activities before Superannuation Net Movement, Non-Current Asset Writedown and Income Tax Expense 12,048 (13,424) Superannuation Net Movement (32,462) 15,746 Profit/(Loss) from Ordinary Activities before Non-Current Asset Writedown and Income Tax Expense (20,414) 2,322 Non-Commercial Asset Writedown (47,840) Loss from Ordinary Activities before Income Tax Expense (20,414) (45,518) Income Tax Expense (1,167) Net Loss Attributable to Members of RIC (20,414) (46,685) *The comparative figures in this summary cover the six-month period from the date of establishment of RIC on 1 January 2001 to date of the first financial report on 30 June Revenue Other 16% Operator and Dept of Transport Funded Capital Projects 14% NSW Government Community Service Obligations 21% Expenditure Network Control and communications 7% Operator/Government funded capital projects 14% Access fees from operators 49% Infrastructure maintenance and other 79% 2

5 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 OUR OBJECTIVES 2002/03 Continue to reduce workplace OH&S incidents through improved safety culture and targeted training programs. Deliver an accelerated expanded maintenance program. Deliver almost $50 million of savings through improved efficiencies. Development of a new possession regime. Upgrade signal control infrastructure. Progress regional resleepering projects. Build staff and organisational capability through detailed training programs Expand RIC College to include major regional areas and CBD. Extend shared business services to deliver improved service levels and achieve cost savings for both RIC and SRA. 3

6 The combination of the asset manager and the maintenance provider into a single corporation enabled the organisation to pool its knowledge and its experience. CHAIRMAN S REPORT RIC will be working hard to deliver against the very clear direction that has now been set. This last year was very significant for Rail Infrastructure Corporation. It saw the completion of the amalgamation of the two former organisations, Rail Access Corporation and Rail Services Australia into one new organisational structure, and the completion of an internal review of the track condition. The combination of the asset manager and the maintenance provider into a single corporation enabled the organisation to pool its knowledge and its experience. It also facilitated a management review of the condition of the infrastructure and the future programs required to repair and, where necessary, replace vital elements of the network. From this platform of sound infrastructure condition knowledge we were able to discuss with Government our future funding requirements. I am pleased to report that the additional Government funding for maintenance that was provided has given us a secure base for the future. It has also delivered improvement in on-time running and a reduction in train delays and speed restrictions. There was a 20% reduction in passenger train delays on the metropolitan network in 2001/02 compared to the previous year and this improving trend is continuing into the new financial year. In the country, speed restrictions on the four main country lines are at historically low levels. The Board strongly supported management s view that field equipment needed to be modernised to improve both safety and productivity and approved the order of a number of large pieces of maintenance equipment. Delivery of these during 2002/03 will underpin safer work practices and improved productivity in future years. In addition to major plant purchases significant investment has been made in providing updated tools to our maintenance teams to help reduce manual handling incidents. A fundamental outcome of our review of track condition, and discussions with Government, was the establishment of programs to save in excess of $175 million in one to five years. These programs should generate over $50 million in savings in 2002/03. These savings will pay for expanded maintenance and renewal of rail infrastructure and also represent our commitment to the Government and people of NSW in return for the continuing financial support provided to the railways. Another key focus going forward, which also flows from the amalgamation of RAC and RSA, is the need to improve our systems. The amalgamation allows us to integrate our financial, management and maintenance systems which will substantially improve coordination, productivity and reporting. The focus in 2002/03 will be on: A reduction in workers lost time injuries; Achieving the forecast efficiency savings; Expanding scope of maintenance programs; and An improvement in systems On behalf of the Board of Directors, I would like to thank management and staff for their hard work, commitment and contribution to the Corporation s achievements during the year. The amalgamation and accompanying change placed enormous pressure on many people, and the Board recognises this. The Board feels confident, however, that we now have the platform from which to make the gains required to deliver a world class rail network for New South Wales. Rod Sims Chairman Safety is the Corporation s first objective and although safety performance continues to improve on prior years, the Board recognises that continuing reductions in workplace injuries is required. The Board is confident that RIC now has the plans in place to further enhance network safety and reliability and to drive efficiencies in the way maintenance is being delivered. RIC will be working hard to deliver against the very clear direction that has now been set. 4

7 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Safety incidents have decreased by 8% and reliability has improved significantly. CHIEF EXECUTIVE OFFICER S REVIEW In all areas of operation, productivity improved. I am pleased to report that the steps necessary to merge the structure of Rail Access Corporation and Rail Services Australia were completed during the financial year with the implementation of our new business model in January The model was developed in conjunction with staff and unions and meets the Government s principle objective of ensuring that the NSW rail network enables safe and reliable passenger and freight services to be provided in an efficient, effective and financially responsible manner. We have moved from two separate organisations, where one managed the infrastructure and provided access for rail operators while the other carried out on-track maintenance and construction, to a single combined operation. We have built the Corporation with three highly focused operating divisions: Access, Metropolitan and Commercial. These divisions concentrate on the immediate needs of delivering a safe and reliable system and work closely with our customers. Three centres of excellence, Safety, Engineering and Projects and Support have been established to support the operating divisions. In addition, there are four professional support groups: Finance, People and Performance, Corporate Services, and Strategy and Planning. Our business model reflects the new environment in which we operate with two very large customers, SRA in the metropolitan area and Pacific National in the rail freight market. In the metropolitan area, CityRail operates 2,900 passenger services on a daily basis, while Pacific National operates 208 services each day across the State. In addition to this, a number of smaller freight and heritage operators have access to our network. Establishment of the Metropolitan and the Access Divisions is helping in our commitment to improve safety and reliability. Safety incidents have decreased by 8% and reliability has improved significantly with peak passenger delays caused by infrastructure incidents down 20% on last year. This year, the average peak on-time-running on the metropolitan network was 91.9%, the best result in several years. An ongoing program of reducing speed restrictions on the four main country lines has resulted in speed restrictions being at their lowest level for over 10 years. Both trends are continuing in the new financial year. Commercial Division manages a diverse portfolio of businesses which relate to and directly contribute to our core business and also to regional development. Safety Division monitors and audits compliance with our internal safety regulations and those established by our accreditation from the Department of Transport. Of particular significance during the year was the completion of the total review and rewrite of the Network Safeworking Rules. Stage 1 of this process, the new Work on Track rules, was implemented in November The Department of Transport (Transport NSW) has endorsed stages 2 and 3 and training in these new rules is currently taking place ahead of implementation at the end of this calendar year. The Engineering group continues to provide valuable technical support and assurance that the organisation continues to operate within engineering standards. This Division also supports innovation and new designs for providing improved safety and reliability. 5

8 CHIEF EXECUTIVE OFFICER S REVIEW continued The focus of the Projects and Support Division is to gain efficiencies in the management of major infrastructure works. This Division carries out the major rerailing, ballast cleaning, sleeper renewal programs, as well as bridge and signals replacement. In all areas of operation, productivity improved and the results during the first quarter of 2002/03 indicate that even greater efficiency gains are being achieved. In addition, several large items of maintenance equipment have been ordered. These will be progressively delivered during the current financial year, which should lead to further productivity and increased safety levels in the execution of major maintenance works. These, in turn, will also support the expanded scope of maintenance activities. Following a review of the condition of the network carried out over the past 18 months, the Corporation was able to approach the NSW government for additional funding, which I am pleased to report was granted. Furthermore, the Community Service Obligation funding arrangements were fixed and extended for a period of five years which together with strong access agreements with our two major operators provides the organisation with a sound financial platform for planning longterm maintenance. Working very closely with SRA we were also able to re-examine the track possession management system in order to develop plans to streamline this process and minimise disruptions to passenger and freight services. The new possession regime will be implemented from 1 July This streamlined possession process together with newly acquired high production maintenance equipment delivered to the field will see a substantial rise in efficiency and productivity in 2003/04 and increased scope delivery. These several new initiatives highlight the importance of longterm planning in rail to ensure both safe and reliable infrastructure is delivered at an efficient cost. None of these changes would have been possible without the full cooperation and involvement of management, staff, unions, SRA and other rail operators, and the NSW Government. I am pleased to report that the close working relationships that exist with all stakeholders allowed us to deliver the outcomes highlighted in this annual report and I look forward to RIC producing further improvements during 2002/03 and beyond. John Cowling Chief Executive Officer 6

9 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 MANAGEMENT STRUCTURE AND KEY RESPONSIBILITIES John Cowling CHIEF EXECUTIVE OFFICER METROPOLITAN ACCESS COMMERCIAL Gary Seabury Glen Dawe Karl Mociak GENERAL MANAGER GENERAL MANAGER GENERAL MANAGER Management of the rail infrastructure assets of the Sydney metropolitan network Delivery of safe and reliable train paths to freight and country passenger customers Management of commercial businesses and joint ventures PROJECTS AND and SUPPORT ENGINEERING SAFETY Peter Mesthos Mike Hickey Ken Kelman GENERAL MANAGER GENERAL MANAGER GENERAL MANAGER Planning, management and delivery of Major Periodic Maintenance and Capital Works projects External contracts IT projects Ensure RIC infrastructure is specified and designed to authorised standards Development of asset management systems and frameworks Leadership and management of safety across RIC, including operations, infrastructure and workplace safety; safety audit and investigation; accreditation; environmental assurance and quality assurance CORPORATE SERVICES FINANCE PEOPLE AND and PERFORMANCE STRATEGY AND and PLANNING Irina White Richard Lumley* John Cairns Janet Clayton GENERAL MANAGER AND CHIEF FINANCIAL OFFICER GENERAL MANAGER GENERAL MANAGER COMPANY SECRETARY Board secretariat Legal counsel, internal audit and corruption prevention Communication management Policies and procedures, insurance Properties Finance and accounting policies, systems and procedures Budgeting and monitoring of RIC financial management performance Statutory and internal financial reporting *Appointed 26 August Strategic management of human resources Planning Corporate performance, regulatory and economic management Co-ordination of long-term asset management plans, replacement strategies and major development proposals IT strategy RIC has 5,695 employees working together and in partnership with our customers and stakeholders to build a world class rail network. RIC Workforce Support Services 20% Workshops, Trades and related 3% Argus Trades and related 2% Infrastructure Workers and related 58% Engineering and Technical 17% 7

10 Building a safer future In the past year, a huge effort has been directed towards enhancing RIC s safety culture and improving safety performance across the organisation. REVIEW OF OPERATIONS Workplace Safety RIC is enhancing its safety culture through a change process which includes reviewing our approach to OH&S and rail safety risk management, identifying the broader organisational issues influencing safety performance, and providing recommendations for further improvements. In the area of incident management, we are critically analysing all incidents that result in injuries to staff. Understanding the causes of incidents enables corrective and preventative actions to be implemented. While progress has been made, our lost time injury frequency rate (LTIFR) for the financial year was (against a target of no more than 20), although for the month of June 2002 it was less than half of the yearly average. There are pockets of the organisation that are achieving excellent performances. Mentoring programs are being implemented to extend those performances across the whole organisation. At the same time, excellent safety performances by individuals and teams are being recognised by our Club Zero Awards. Safety training A number of training initiatives have already been developed to improve our overall workplace safety. These include training in the principles of safety management for executive managers, comprehensive WorkCover accredited workshops for supervisors, team leaders and team managers and extensive on-site training in manual handling techniques for our operations staff. Network safety Safeworking Rules Review project This project is being carried out in three stages. In November 2001, Stage 1 of the new Safeworking Rules, Work on Track was introduced and 3,850 employees were trained in these new procedures. These new rules will help ensure consistent application of the appropriate worksite protection procedures. Stage 2, which covers Systems of Safeworking and Special Working, General Instructions and Train Working Rules, and Stage 3 which relates to Signalling and Signs, received final industry signoff in June 2002 and were endorsed by the Rail Safety Regulator, Department of Transport (Transport NSW) in July These will be implemented in December 2002 and will apply to every organisation and entity working on the New South Wales rail network, including over 11,000 rail industry employees. These new Network Rules and Procedures were developed after extensive consultation with stakeholders. The risk-based approach adopted within these new rules is consistent with the new OH&S legislation. Joint safety initiatives RIC works with all members of the rail family to build improved standards of safety performance across the network. There were several areas of major focus during the year, including Signals Passed At Danger (SPADs), level crossing safety upgrades, and a comprehensive and proactive program of track inspection. A number of joint audits of signal boxes were carried out with SRA. 8

11 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 SPAD reduction and mitigation programs There was a reduction in the number of SPAD incidents during the year through the implementation of several ongoing infrastructure initiatives. These include improvements to high priority catchpoints; extension of train stops; installation of advance turnout indicators at priority locations; and provision of infrastructure solutions to metropolitan multi-spad locations. In addition, improved driver training programs at SRA are helping to reduce SPAD incidents. Level crossing safety upgrades RIC, through the Level Crossing Strategy Council (LCSC), has played a key role in reducing safety risks at level crossings. This year, with the benefit of increased Government funding, RIC commenced a three-year $12 million program identifying and prioritising 130 level crossings around the State for safety upgrades. RIC commenced work on these crossings in July 2001 replacing passive warning mechanisms with active protection such as flashing lights, bells, boom gates, advance warning lights and where appropriate, Graded Crossing Predictors (GCP). The introduction of GCP substantially reduced construction costs and enhanced safety by providing improved awareness and visibility for both the train driver and road users. At the close of this financial year, safety upgrades had been completed at 31 level crossings. During the 2002/03 financial year a further 48 level crossings will be upgraded. Track Inspection Early this year, higher sensitivity testing of the State s rail track revealed a number of rail heads with internal cracking, also known as vertical split head (VSH) defects which previously may have gone undetected. RIC has a rigorous testing regime in place, which enables us to locate and manage defects in a controlled manner including removing and replacing rail as soon as possible often within 24 hours. RIC is reviewing the details of the recently completed tests to both better understand why these defects occur and to further improve our detection abilities. In addition, track staff has been trained in visual inspection methods and hand ultrasonic testing. Over the next three years RIC will spend $30 million on the replacement of over 100 kms of track. This is part of a 10-year program that is supported by special funding from the Government. Glenbrook Inquiry recommendations In conjunction with SRA and Transport NSW, RIC is progressing actions to implement the interim and final report recommendations. There has been good progress in the areas for which RIC is directly responsible. These include Safeworking Rules, training and the protection of infrastructure workers, and improved train location indication in automatic areas through the illumination of dark territories on the metropolitan network. Work is still required on project plans for significant upgrades to communication and network control. Audit and investigation During the year, over 200 hazard audits were conducted and over 80% of the major nonconformances were reviewed and closed off within six months of the original audit. In addition, 28 reports into Level 2 investigations (major incidents) were completed for Transport NSW. 9

12 Building better systems and tools During the year a number of technological initiatives have been implemented to significantly improve system safety. REVIEW OF OPERATIONS continued Indicating Automatic Signal Sections (IASS) Project This project improves the accuracy in determining a train s position along a particular line segment removing so-called dark territories and reducing the potential of conflicting train movements. IASS has been installed at 18 locations, effectively illuminating the entire metropolitan network. The data captured on this system is also being utilised to establish technical maintenance plans to further improve system availability and reliability. RIC is also working closely with SRA to improve network control to enhance safety and reliability. Joint initiatives include: Metropolitan Signal Control System (MSCS) Project, and ATRICS (Advanced Train Running Information and Control System) Metropolitan Signal Control System (MSCS) Project This is a project to modernise existing signal control infrastructure to achieve continual improvements in safety and reliability on the network. It will also provide increased capacity for signal control in the metropolitan area to support projected demands on the network over the next 20 years. In July, we completed construction of the Sydenham Signal Box. At a cost of $12 million, it contains some of the most advanced computerised signalling technology available and greatly improves the reliability of train operations. The new centre controls signals for the Bankstown, East Hills, Airport and Illawarra lines as well as goods lines to Port Botany. It also operates as a base for a quick response team of 20 RIC technical staff, who provide 24 hour a day, seven day a week support. ATRICS: Advanced Train Running Information and Control System ATRICS provides accurate train timetable information using computer-based signalling technology. It also provides improved incident response times through an automated reporting process. This is progressively being introduced across the network and has been installed at the Sydenham Signal Box. Broadmeadow Train Control Centre As part of a staged upgrade of the northern Network s communication, signalling and control, a new $4 million train control centre is being constructed at Broadmeadow. The Broadmeadow Train Control Centre will be responsible for all rail traffic between Brisbane and Broadmeadow and west to Dubbo. This new facility will improve the operational efficiency of the network and enhance safety and reliability through the removal of life expired equipment and the upgrade of outdated technologies. Mimir and Hazan Key systems initiatives included the development of the knowledge management tools, Mimir and Hazan. Mimir uses historical data to help determine maintenance service schedules and technical plans. Hazan is a complementary tool that allows us to identify and put in place the consistent controls to manage hazards associated with maintenance tasks. It also provides valuable information to cost effectively manage our assets. An internet version of Mimir which includes a Failure Modes, Effects and Critically Analysis (FMECA) process will be ready by the end of 2002 for use by suppliers to the Parramatta Rail Link. Mimir and Hazan are scheduled for complete integration during the 2002/03 financial year and will provide a seamless connection between client requirements and all routine maintenance activities. 10

13 Building reliability RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 There has been a reduction in both incidents and delays and a significant decrease in number of speed restrictions. Metropolitan On-time-running (OTR) on the CityRail network during the year averaged almost 92%. This is on target and is the best OTR result in several years. This was achieved through a reduction in infrastructure incidents and minimisation of delays as a result of incidents. Peak period incidents fell by 12% on the previous year and delays were down by 20%. In addition we improved our response time to incidents by 6%. Several factors and specific initiatives contributed to these improved results. The proactive approach of frontline staff in identifying and remedying potential defects. During the year, RIC commenced a two-year $16 million project to upgrade the overhead wiring system in the Sydney CBD. The existing system has been in place for 70 years. To date, the overhead wiring system between Redfern Station and Goulburn Street, Sydney, has been replaced. This is the most heavily used section of rail infrastructure in the State, with around 2,300 rail services passing through it daily. Further work on this project is scheduled for October FAST FACTS Metropolitan network Is bounded by Broadmeadow/ Newcastle, Lithgow, Macarthur and Bomaderry. Comprises 1760 km of electrified track. In geographic terms, is one of the world s largest metropolitan networks. CityRail is RIC s largest customer. Regional network Provides access to rural, interstate, and heavy haul freight services, and long distance passenger services. Establishment of a Reliability Project Team which focuses on the use of data and analysis to identify initiatives to improve network reliability. Formation of the Incident Recovery Project to provide faster and safer maintenance response solutions to infrastructure incidents. Formation of the Infrastructure Operations Centre (IOC) to coordinate responses to incidents across the metropolitan network. RIC will build upon the reliability initiatives introduced this year to help provide further gains in OTR performance during 2002/03. Regional During the year, the Government allocated $80 million to improve country rail infrastructure. An ongoing works and maintenance program including resleepering, bridge renewals, track resurfacing, rail grinding and ballast cleaning has achieved a significant reduction in the number of speed restrictions on the regional network. At year-end, there were 38 speed restrictions on the four main country lines, a reduction of 55% over the previous year. This is the lowest level in almost 10 years. The four main country lines comprise the Main South (Glenlee to Albury), Main North Coast line (Newcastle to Brisbane), which are the busiest long distance rail corridors in Australia, and also Main North-West (Newcastle to Moree) and West (Lithgow-Dubbo) corridors. RIC and Transport NSW signed a new Community Service Obligation (CSO) line funding agreement in December 2001, which incorporates the additional $80 million each year as an ongoing commitment for a five year period. This brings the Government CSO support of country rail infrastructure to $285 million per year. This certainty of funding has enabled RIC to undertake and complete several major regional track upgrades during the year. These projects include the $6.3 million Junee to Albury track upgrade; the $11.2 million upgrade of the Nyngan to Cobar rail line; resleepering the Main North Coast line between Dungog and Craven; and the installation of 30,000 concrete sleepers and 20 kilometres of replacement track on the Main South line between Bargo and Tennessee. In addition, bridge renewal works are being carried out in the Gunnedah and Moree-Narrabri area and also between Taree and Grafton. Ballast cleaning is being carried out over 55 kilometres on the Main South line. Several major resleepering projects to further improve reliability on the regional network will be carried out in 2002/03. These include work on the Main North Coast line, and the Parkes to Roto section of the Main Western line. In addition, reconditioning and resurfacing will be carried out on the Stockinbingal to Forbes line. Peak OTR on metropolitan network (average for year*) 85.4% 99/ % 91.9% 00/01 *target: 92% /02 Speed Restrictions on four main country lines (as at 30 June*) *control target no more than 60 11

14 Building capacity Increased government funding has enabled expansion works to be carried out across the network to support forecasted passenger demands and to increase the competitiveness of rail freight. REVIEW OF OPERATIONS continued Metropolitan passenger network Increasing urban development, especially in the Southern, North Western and Western suburbs of Sydney, will lead to steady growth in passenger traffic. To lay the platform for this future growth, RIC has progressed or completed several large expansion projects. These include: East Hills amplification South Coast electrification Richmond line duplication; and Parramatta-Chatswood Rail Link East Hills amplification: completed in September 2001, this project involved the doubling of tracks from two to four between Turrella and Beverly Hills and a complete rebuild of all the assets in that section. The works covered a total rail corridor distance of 5.6 kilometres and required the widening of three existing road overbridges, the construction of a new rail bridge, 4,000 metres of retaining walls, and the laying of 37,500 concrete sleepers. Cost of the capital works was $90 million, with an additional $16 million for major periodic maintenance. South Coast electrification: the electrification of the South Coast line between Dapto and Kiama was completed in October This $45 million project provides improved service quality and capacity for train services south of Dapto by providing for through services from Sydney and Wollongong. The scope of works included overhead wiring, power transmission system, substations, associated track changes, bridge and tunnel clearance works and platform alterations to accommodate longer trains. The project also included signalling upgrades from Dapto to Kiama. Richmond line duplication: in December 2000 the Government allocated $25 million in funding to expedite construction of an additional three kilometres of track between Marayong and Quakers Hill to improve capacity and reliability for the entire Richmond line. Work commenced in April 2001 and also involved installation of overhead wiring and bi-directional signalling on each track; construction of a new platform and buildings at Marayong station; a new bridge; new footbridges and retaining walls; earthworks, stormwater drainage and landscaping, and power supply upgrade. The comprehensive construction work was completed in early July this year. Parramatta Chatswood Rail Link: the year saw enormous progress on the largest public transport initiative undertaken in New South Wales, the Parramatta-Chatswood Rail Link. Once complete, the link will greatly increase capacity to the Main North and Main West lines. Planning approval for the link was issued in February 2002 and in June, the contract for the largest component of the construction work was awarded. The construction work includes the 14 kilometre tunnel and station excavation works between Epping and Chatswood and the installation of track, signalling and communications systems at a total budget of $858 million. In an effort to minimise the impact on Lane Cove National Park, the original plan was modified to include a cut and cover tunnel crossing the Lane Cove River. The project has also incorporated very high standards for noise and vibration. The first stage, Chatswood to Epping with stations at Delhi Road, North Ryde, Macquarie University and Macquarie Park, will be complete by Easy Access RIC in conjunction with the SRA, has provided improved Easy Access facilities at the following CityRail stations via CityRail s Station Upgrading Program: Allawah, Caringbah, Engadine, Katoomba, Regents Park and Wollongong. Easy Access works are well underway at a further 18 stations in the metropolitan area. 12

15 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Freight network The Corporation has an extensive freight customer base and operates in the coal, grain, minerals, and general freight markets. There are 10 freight operators on the RIC network, including one new operator that started up during the year. Performance has been strong in all freight markets, with the exception of grain. Gross tonne kilometres (GTKs) increased by 8% over the previous year. Coal GTKs increased by 5% and growth of 7% in general freight and minerals arose primarily from new freight flows. These new freight flows included increased container growth through Port Botany, increased volumes on the North Coast, new train movements from the MoreeLink terminal to Sydney and increased aggregate volumes between Shellharbour and Sydney. Hunter Valley: the Hunter Valley is the world s largest coal export centre, with capacity expected to increase from the current 70 million tonnes per annum to over 80 million tonnes over the next four years. During the year, RIC invested $15.3 million on commercial projects to enhance the capacity, safety and reliability of the network in this region. These projects included rerailing, resleepering and bridge renewals between Maitland and Singleton. A major achievement in this regard was the replacement of both the Allandale and Jump-Up Creek underbridges with minimal disruption to our customers operations. Port access at Kooragang was improved through commencement of replacement works on Sandgate Junction turnouts, and removal of speed restrictions. To meet future coal demand requirements, RIC has developed a 10-year business plan which includes capital works and maintenance programs. During 2002/03 RIC will invest $30 million in this region. Projects include installation of wayside devices, upgrade of Whittingham Junction and Singleton Yard, grade separation at Metford and bridge replacements. Port Botany: The number of export containers moved by rail increased by 5.5% in 2001/02 and over the past four years has almost doubled. To accommodate this and forecast growth, infrastructure upgrades have been carried out to improve accessibility and capacity. A four-stage program, stage 1 was completed in 2001, and stages 2 and 3 in April, These works involved the track duplication and upgrading from Marrickville to Cooks River, and bi-directional signalling from Marrickville to Port Botany. The duplication of the existing goods line provides a passing/crossing loop for freight trains travelling to and from Port Botany. This will enable operators to meet the predicted future increases in container traffic carried by rail into this busy port. Paterson loop extension: the North Coast corridor experienced 18% freight growth in 2001/02. In order to accommodate future growth and increase competitiveness of rail freight, services are dependent on the number of crossing loops capable of supporting 1,500 metre long trains. Following comprehensive studies, Paterson was assessed as a priority location for a loop extension and, as a result, the $2.4 million program commenced in May This extension will not only result in additional train path capacity for Sydney-Brisbane services, but also an increase in revenue and a reduction in travelling times on this busy corridor. Another eight to ten locations are being considered across the country NSW network for loop extension. MoreeLink: To develop the rail freight potential of inland New South Wales, RIC is working closely with the Premier s Department. During the year the new MoreeLink intermodal terminal was opened to generate additional freight on rail. It will also provide a boost for the local community by enhancing the commercial viability of local industry. Over the next 12 months, RIC will focus on initiatives to improve rail freight market share on the Sydney to Melbourne corridor. In particular, we will investigate appropriate resignalling schemes to reduce the current restriction on train headways on this line. 13

16 Building efficiencies and effectiveness RIC has adopted a multi-faceted approach to improve network and organisational efficiencies and effectiveness. REVIEW OF OPERATIONS continued FAST FACTS Asset management improvements A consolidated review of asset management has provided increased knowledge of the assets and the work required to provide sustainable infrastructure performance. At the routine maintenance level detailed technical maintenance plans are being built on a condition based approach. In the asset renewal area, we are developing new tools that will accurately capture and define asset condition in order to develop optimum replacement strategies. Possessions review project A key issue for RIC is maintaining the availability of the metropolitan network while essential maintenance is carried out. The possessions review project was initiated during the year by the Coordinator General of Rail. A structured possession program is expected to be implemented from July This new possession program will remove the complexity in the current system, improve safety, reduce operational costs, provide greater certainty of possession times and increase productivity and efficiency for all stakeholders by maximising works carried out in a minimum number of possessions. Major plant and equipment upgrades During the year, RIC committed $54 million of a planned five-year $92 million major plant and equipment upgrade program. This new plant and equipment will enhance operator safety, reduce costs and limit the time that track is taken out of service for maintenance. In April, RIC took delivery of a $1.4 million high speed ballast regulator which is being used to carry out multi-purpose resurfacing on the Metropolitan network. This equipment was delivered ahead of schedule and under budget. Two high-speed tampers, valued at $12 million, are under construction. The first is scheduled to be delivered in October 2002, and the second in June This equipment will give us the capacity for concrete turnout tamping and also allow flexibility for plain track tamping in the same possession. A $30 million commitment to new generation ballast cleaning equipment is expected to return savings of at least $3 million per year, by significantly reducing the time taken to ballast clean the network. It will also improve ballast RIC has adopted a multifaceted approach to improve network and organisational efficiencies and effectiveness. This multi-faceted approach includes: Asset management improvements Possessions review project Major plant and equipment upgrades Project management improvement initiatives An on-going War-on-Waste campaign 14

17 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 recovery rates, and reduce soil and noise pollution. An inspection car providing computer-based track fault detection will be in operation on the network after a three-month trial commencing January It will provide significant safety and OH&S improvements by minimising the use of foot patrols for track maintenance functions. In addition, various support equipment was ordered, such as tractors, loaders, compressors and forklifts. At year-end most of these items had been delivered and were in operation across the network. A $4.8 million program to refurbish existing ballast cleaners, resurfacing equipment and resleepering equipment is in progress. Our regional in-house facilities are being used wherever possible to carry out this refurbishment program. A long term plan to upgrade RIC s fleet of aged support vehicles, both on and off track, was another major focus during the year, with 732 replacement vehicles delivered. We are now planning to decentralise routine purchasing and fleet support functions through master supply agreements. Project management improvement initiatives Considerable work has been undertaken to enhance our project management capabilities as well as integrating project management related systems across the organisation. The objective is to obtain uniformity, consistency and world s best practice in the way we manage projects. We are beginning to realise the benefits from this initiative with cost and efficiency savings on several major infrastructure projects. For instance the use of on-site project management tools on the recent Tahmoor to Bargo concrete resleepering project, together with an effective possession management program, helped bring it in almost 15% under the original budget of $8.9 million. These project management tools are now being used on several other major regional projects, such as the North Coast Resleepering Project, which commenced in July War-on-Waste This initiative commenced in February 2002 to achieve two principal objectives: to help RIC become a more efficient organisation and, as a result, channel the money saved back into extra maintenance on the track. The program also sent a clear message to RIC staff and management to engage in the process of moving the organisation forward. During the year, a series of interactive workshops were held across the state to encourage employee suggestions. Over 800 employees participated in this process which resulted in almost 500 suggestions being received. These were analysed, categorised and allocated to the appropriate members of RIC s executive team for action. To date over $10 million of savings have been identified with over $1 million already being realised through suggestions that have been actioned. One of the War on Waste suggestions from staff was that RIC should recover and reuse redundant materials left by the track. As a result, 6,000 tonnes of excess recovered ballast from the Moss Vale- Unanderra project was reused in the Tahmoor to Bargo concrete resleepering project. This ballast was used as bottom ballast and saved around $200,000. RIC also used all 500 tonnes of recovered ballast from the Bargo project as capping material, saving a further $20,

18 Building our commercial business capabilities RIC has a diverse portfolio of commercial businesses, that relate and directly contribute to the core business and regional development. REVIEW OF OPERATIONS continued FAST FACTS Argus Telecommunications Argus Telecommunications manages and maintains telecommunications services for the NSW rail industry. Achievements this year include the installation of modern touch-screen technology for voice communications to the new Broadmeadow Train Control Centre. Along with the Junee Train Control upgrade, this will assist in the standardisation of communications across the NSW rail freight network. During the year, Argus played a major role in implementing the NSW Government s strategy of utilising state owned communications infrastructure to benefit other Government agencies and the wider community. In conjunction with the Department of Information Technology and Management and the Department of Education and Training, two TAFE Colleges and seven schools have been connected to the Argus network. Rolling Stock and Rail Fabrication Centres RIC has two rail fabrication centres located in regional New South Wales, at Bathurst and Goulburn. Bathurst specialises in points and crossings and welded rail. Goulburn concentrates on rail wagon building and modification. Bathurst Rail Fabrication Bathurst s rail welding plant meets all NSW requirements for welded rail. This centre has undergone a major change over the last year. The workplace has been reconfigured, and the product range increased. In addition, employees have gained new skills as a result of a cooperation agreement entered into with VAE Aktiengesellschaft, an Austrian company which provides access to its technology for the manufacture of points and crossings. Investment in plant and equipment and continual improvements in quality and efficiency enabled the points and crossings business to achieve a small profit this financial year. Commercial businesses Argus Telecommunications Rolling Stock and Rail Fabrication Centres Ballast Quarries and a Ballast Recycling Centre Business Services Group (shared services) Joint ventures 16

19 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Goulburn Rolling Stock and Fabrication Highlights during the year included: Building of 25 new NDFF ballast wagons and an order placed for a further 25 wagons. Commencing the painting program for the fleet of 95 NDFF ballast wagons. Safety modifications to the existing ballast fleet. Renewals of lease agreements for surplus wagons. Surplus wagons have been converted into container-carrying wagons and are providing an alternate source of revenue. To enhance safety and improve capability, a new $500,000 painting booth was installed. Further equipment purchases are planned for 2002/03 including the acquisition of a large capacity band saw and new cranes for the facility. An increased focus on safety resulted in a significant reduction in Lost Time Injuries (LTI s). Quarries and Ballast Recycling Centre RIC s three quarries are located at Bombo, Ardglen and Martins Creek. They provide almost 60% of RIC s annual ballast requirements. A significant investment has been made to upgrade equipment at the quarries to enhance safety and productivity. RIC spent $6.4 million purchasing four front-end loaders and three dump trucks, which were delivered in April Through better coordination of transport and quarry operations, a substantial saving was achieved per trainload for delivery of ballast from quarry to worksite. All three quarries have maintained their outstanding safety records throughout the year. Over a six year period, the Ballast Recycling Centre at Chullora has been successful in reducing the volume of material requiring disposal from 40% to less than 1%. By converting used track ballast and other construction waste into reusable products, RIC has exceeded its obligations under the Waste Minimisation Act (1995). Business Services Group The Business Services Group (BSG) was established this year to manage a portfolio of RIC business functions and to implement a platform for the future incorporation of SRA business functions. BSG s key objectives are to enable business units to concentrate on core operations by taking over a range of administrative tasks; gain process efficiencies; improve customer satisfaction; achieve cost savings; and transform operations to a service excellence business. Current business services include recruitment, IT operations, selected financial operations, and administrative services. Business case studies are now being carried out on several other business services being considered for transition to BSG. Joint Ventures RIC is committed to extracting maximum benefit from its joint ventures and all businesses are closely monitored to ensure their strategic fit with RIC s objectives. These joint ventures were entered into by the former RSA and include: Track Australia, a joint venture with Plasser Australia Pty Ltd to provide tamping, dynamic track stabilising and ballast regulating services. The RIC/Thiess Victoria joint venture provides infrastructure maintenance services to Bayside Trains and Swanston Trams in Melbourne. Transfield/RIC provides electro mechanical services to the mining, power and rail industries. Rail Fleet Services, a joint venture with Alstom to maintain rolling stock. Both the Rail Fleet Services and Transfield/RIC joint ventures emerged from the restructure of the former Railways Workshop Division. 17

20 RAIL MAINTENANCE DEFINITIONS SUMMARY Concrete resleepering Concrete resleepering involves the full or partial replacement of timber sleepers with concrete. The benefits of concrete are that it lasts 30 years longer than timber, is environmentally friendly and costs the same to produce but requires less maintenance. Steel resleepering Steel sleepers are a less expensive option than concrete and are generally used to replace timber on tracks with light usage. Tamping Tamping is carried out by a machine which lifts track and sleepers while steel prongs vibrate the ballast to pack it down and increase stability. On branch lines, attachments are fitted to back-hoes (tamping heads). Resurfacing This involves tamping the track to ensure it is level. This results in a smoother ride for passengers and less wear and tear on rolling stock. Ballast The rocks underneath the sleepers and rails. Ballast cleaning A ballast cleaner is a machine that lifts the sleepers and rail, scoops up the rocks, cleans out the rubbish and re-lays the ballast. Clean ballast provides greater stability of track and aids drainage. 18

21 Building a team RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 A major achievement for the year was the negotiation of the first RIC Enterprise Bargaining Agreement (EBA). OUR PEOPLE Building our employees capabilities During the year RIC invested $5.5 million in developing organisational competencies through the delivery of training programs across the entire organisation. These specifically targeted previously identified competencies and are designed to: align our frontline workers with national competencies strengthen our team leadership and management by focussing on our management development program develop and implement frameworks to promote the Corporation s critical corporate skills such as project management; contract management; asset management; risk management; people and IR management; and financial and capital management develop assessment methodologies to monitor our progress in these areas In addition, we have strengthened our planning disciplines to streamline the targeting and administration of training programs. We are also promoting a framework of performance assessment and reward. Knowledge management is being progressed through programs to retain and grow our knowledge base, establishment of forums for sharing of knowledge, and putting in place the mechanisms to encourage employees to update their knowledge and skills. The RIC College was established in April This provides the Corporation with the facility to train and develop our employees, for the benefit of the Corporation and the individual. RIC College, Wagga Wagga campus was officially opened in June. Belmore College has recently been vested to RIC. Additional facilities are planned for Dubbo, Orange, Newcastle, Taree, and the Sydney CBD. The establishment of RIC College represents a fundamental shift from the previous qualification approach to a competency-based approach. It is a requirement of RIC s new EBA that we provide all employees with a minimum of 10-days training each year. To facilitate this, we have established a centralised training committee comprising of representatives from our Learning and Development staff across the Corporation and union representatives. In July 2002, the first full corporate training plan was completed. This comprises an analysis of skill gaps throughout RIC and identifies training and competency development requirements for all employees. RIC pursued five strategic People and Performance goals over the year. Building capability in the RIC workforce to meet Government objectives. Providing direction in workforce planning to ensure we have the right people in the right place at the right time. Proactive industrial relations management to enhance efficiency and effectiveness. Development of a culture that focuses on effectiveness and efficiency. Promotion of the wellbeing of RIC employees. 19

22 Building a team OUR PEOPLE continued An increased emphasis on our graduate program resulted in RIC more than doubling its intake of graduates this year, with 80 participating in our three-year program. In addition there are 50 undergraduate students from various disciplines currently gaining valuable on-the-job training and work experience. Workforce planning During the year, the main focus of workforce planning was the filling of RIC s new structure, development of frameworks for recording data on RIC s workforce, development of benchmarks to allow analysis of existing and future workforce needs, and the roll-out of the workforce planning process. The first draft of our Workforce Plan has been completed. Preparation of divisional and business plans is continuing as is separate workforce planning for trade-based streams in infrastructure maintenance. All of these initiatives will result in the completion of the endorsed RIC workforce planning model and process, which will link RIC business planning, budgeting and project planning and enable us to identify critical roles, skills and requirements over the next five years. This plan will play an important role in decisions regarding graduate and apprentice intake and also training initiatives to be implemented. Under this plan, all key positions in the Corporation will be reviewed on a regular basis in the context of succession analysis Benchmarking specifications have also been developed for our workforce planning process. This will enable us to compare our programs with various organisations in the private and public sector and to make appropriate modifications and additions to ensure that we are achieving best practice in this area. Industrial relations RIC continued to maintain positive relationships with its union partners to build a safe and successful future for the railway industry. As evidence of this, a major achievement for the year was the negotiation of the first RIC Enterprise Bargaining Agreement (EBA). The negotiations, which commenced in July 2001, resulted in the development of a single agreement to replace the five existing agreements which covered employees in the pre-merged organisations. A framework of consultation with rail unions, including a single bargaining unit convened by the Labor Council of NSW, and staff representatives were involved in the development of a comprehensive agreement. This has recently been certified by the Australian Industrial Relations Commission. This agreement addresses a number of major issues aimed at improving 20

23 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 RIC s capability. These include competency assessment and development aligned to the national competency frameworks, performance management, fatigue management, training and development, and promotion of continuous improvement. Cultural change RIC undertook a number of initiatives during the year to promote a culture of efficiency and effectiveness across the organisation. Programs included the implementation of the RIC senior management cultural development program together with training workshops covering subjects such as communication with team members, trust-based leadership, and programs specifically designed to increase employees understanding of the reasons why this cultural change is necessary to move the organisation forward. The War-on-Waste campaign is an integral part of this cultural change process. An extensive communication program, reaching all employees, reinforces these initiatives. Staff wellbeing Policy and diversity RIC s EEO plan ensures the Corporation satisfies and exceeds statutory requirements. This plan incorporates the establishment of a number of new EEO related policies. With the finalisation of the EBA, 15 identified key policies will be implemented, with full consultation, by September The remaining policies will be developed during 2002/03. Injury Management Centre RIC s centralised Injury Management Centre (IMC) was established after RIC took on selfinsurance of workers compensation two years ago. The IMC handles all claims processing, rehabilitation management and critical incidence response. During the year, 66% of workers compensation claims received were finalised, compared to 35% in the same period last year. Employee assistance program Considerable work has been carried out to implement a Health Development Program for RIC staff. RIC regularly conducts Health Fairs in major centres to provide staff with the basic knowledge needed to manage their own health. An Operating Procedures Manual and training program for the management of injuries have been developed inclusive of all the workers compensation legislative changes. 21

24 Building environmental awareness and community relationships RIC is constantly working to enhance its environmental performance to meet and exceed community expectations. ENVIRONMENT Environment protection Under its Environment Protection Licence (No. 3142) from the Environment Protection Authority (EPA), RIC has responsibility for the licensed aspects of environmental performance of railway activities. The licence focuses primarily on noise pollution. During the year, RIC conducted a series of licence implementation briefings for RIC management and rail operators to clarify licence obligations. RIC reports regularly to the EPA in line with licence reporting requirements. Training During the year, new training and awareness programs were developed to help staff improve environmental risk management skills and heritage awareness. In addition, a general environmental awareness video clip was produced and distributed to all employees. This video clip is also being used in team briefings and new employee inductions. Consumer response (Greenline) RIC operates a 24-hour statewide environmental hotline, Greenline, for the community to register environmental concerns, and also to provide support and assistance to RIC staff. During 2001/02 there were 1,628 environmental concerns registered, compared to 1,250 the previous year. Of these, 953 calls related to RIC s assets and activities, which is only slightly above the previous year. The majority of concerns related to noise, natural resources such as weeds and vegetation, fencing issues, and graffiti. Information held on the Greenline database is used to confirm compliance with our Environment Protection Authority (EPA) licence and to identify hotspots. It is also used to develop local and statewide remedial strategies related to noise, weed suppression, and graffiti. An example of this is RIC s Graffiti Management Program, which supports and is in-line with the Government s anti-graffiti policy. The program commenced in March, 2001 with a 17-week trial at six metropolitan sites. This program has since been expanded. One of the requirements of the EPA licence involves the implementation of a five year Noise Pollution Reduction Program. Commencing on 1 July 2001, the program applies to the five highest priority noise affected lines in the network. These are: Inner West (Redfern to Auburn) North Strathfield Junction to Hornsby Auburn and Merrylands to Penrith Erskineville Junction to Waterfall North Shore (Waverton to Hornsby) 22

25 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Heritage Throughout the year, RIC sought to ensure its heritage assets were protected through the preparation of Statements of Heritage Impact for various projects and also through its Section 170 Heritage and Conservation Register and representation on the SRA/Heritage Office liaison committee. During the financial year, 280 new items were added to RIC s Heritage and Conservation Register. This Register is electronically available to all RIC employees. In keeping with RIC s ongoing support and conservation of rail heritage in New South Wales, donations of old and surplus equipment were made to heritage preservation societies. Properties management RIC s environmental management programs also extend to those properties that we either own or control. Planned and random visits are carried out to all properties to review the environmental status and to identify areas in need of upgrade or replacement. This proactive approach also serves to raise awareness and environmental standards across the organisation. Remedial works such as the removal of unacceptable waste and other materials were undertaken at several of these properties. Performance RIC s overall environmental performance has been satisfactory. In March 2002, RIC was fined a total of $50,400, including costs of $18,400, after detection last year of pesticide contaminating waters near the recently reopened Cowra- Blayney line. Herbicide application procedures and a staff training program have been implemented to help prevent recurrence of similar incidents. In addition, RIC received several infringement notices from the EPA in relation to unacceptable smoke emissions from RIC vehicles. Our ongoing vehicle replacement program should help to resolve this issue. 23

26 FINANCE The Finance Division provides financial management information to the Corporation and support to our Business Divisions in delivering financial targets and obligations which meet our stakeholders and shareholders expectations and requirements. Financial Review Financial Performance The Year Ended 30 June 2002 represented the Corporation s first full year of operations. The Corporation derived its $1,155.6 million of revenue from four main sources: Access fees from operators $561.3 million Funds provided from operators and Transport NSW for capital projects $160.3 million Funds from Government to meet our Community Service Obligations $246.6 million Fees from providing rail related maintenance and construction services to external clients primarily State Rail $86.4 million Income from miscellaneous sources amounted to $101.0 million. The loss for the year of $20.4 million was mainly attributed to external factors impacting on superannuation expenses. Before taking into account the financial effect of the net movement in superannuation of $32.4 million, the Corporation achieved an operating profit of $12.0 million (budget $10.0 million). Financial Position The main changes in the Corporation s Statement of Financial Position as at 30 June 2002 compared to the position as at 30 June 2001 are: reduction in cash reserves of $42.4 million. The cash reserves were used mainly for the acquisition of property, plant and equipment and construction of infrastructure for commercial purposes ($148.2 million) offset by a net positive cash inflow from operating activities ($109.9 million). The Corporation has sufficient working capital to meet its current obligations as and when they fall due. reduction in our total equity of $20.4 million was brought about mainly from the impact of a reduction in prepaid superannuation contributions referred to above. The negative performance of our superannuation funds managed and controlled by an external agency has meant that a significant call was placed on prepaid contributions to meet the superannuation liability attaching to defined benefit schemes. This negative performance was consistent with other fund managers operating within Australia and overseas. 24

27 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Detailed Budget 2001/2 2001/2 2002/3 Budget Actual Budget $million $million $million Revenue Access fees from operators Maintenance and Construction Services NSW Government Community Service Obligations Operator and Department of Transport funded capital projects Traction Energy Telecommunications services Proceeds from asset sales Interest Other Total Revenue , ,103.7 Expenditure Direct Maintenance Network Control and Communications Bulk Electricity Corporate Overheads Depreciation Loan Interest Operator and Department of Transport funded capital projects Non Commercial Capital projects Telecommunications costs Maintenance and Construction Services Other Total Expenditure , Profit (Loss) from Ordinary activities before Income Tax Expense and Prepaid Superannuation Contributions Adjustment (48.8) Revenue The major factor in both the actual 2001/02 and 2002/03 budget actual has been increases in Community Service Obligation (CSO) funding. RIC s allocation for regional areas has been increased by $80 million during 2001/02 and 2002/03. In addition, the Metropolitan network is receiving an additional $50 million per annum for 10 years commencing 2002/03. During 2001/02 RIC received unbudgeted revenues of $62.2 million relating to Parramatta Rail Link from Government ($37.7 million), station upgrading and OH&S works from SRA ($7.7 million) and third party works impacting infrastructure ($16.8 million). Third party works include level crossings, road bridges and some commercial developments. Similar amounts of expenditure were incurred. Expenditure Additional CSO revenue in the metropolitan and regional areas is driving increases in maintenance expenditure for both 2001/02 and 2002/03. In addition, increased expenditure on Major Periodic Maintenance projects will lead to a budgeted operating loss next year. These projects will improve reliability and reduce routine maintenance expenditure in future years and therefore have been brought forward. Network Control costs will decline in 2002/03 due to vesting of the metropolitan functions to SRA. Revenue will decline by a similar amount. The projected deficit of $48.8 million is a result of additional maintenance expenditure and will be financed by cash reserves. 25

28 CORPORATE GOVERNANCE The Rail Infrastructure Corporation (RIC) is a Statutory State Owned Corporation, with a Board of Directors, share capital and Memorandum and Articles of Association (Constitution) similar to those of a public company. Other regulations by which RIC operates are the provisions of the Transport Administration Amendment (Rail Management) Act 2000, the Transport Administration Act 1988 (as amended) and the Rail Safety Act The Board of Directors of RIC is responsible and accountable to the Voting Shareholders, who each hold one share for and on behalf of the New South Wales Government in accordance with the State Owned Corporations Act The two Voting Shareholders representing the New South Wales Government are the Premier, the Hon R Carr MP and the Treasurer, the Hon M Egan MLC. The Portfolio Minister is the Hon Carl Scully, Minister for Transport. RIC is also subject to directions from the Coordinator General of Rail and works closely with the Office of the Coordinator General of Rail, whose function is governed by the Transport Administration Amendment (Rail Management) Act Board of Directors The Board of Directors is recommended by the Voting Shareholders and approved by the Governor. The Board is accountable to the Voting Shareholders. The Board appoints the Chief Executive Officer after consultation with the Voting Shareholders. The Chief Executive Officer reports to the Board, which is responsible for the Chief Executive Officer s performance. The Board is responsible for setting the strategic direction of the Corporation, establishing goals for the management of the Corporation and the monitoring of those goals. Other Corporate Governance functions include liaising with the Voting Shareholders and the Portfolio Minister and ensuring compliance with statutory requirements. The Board and management of RIC have clear performance targets set out in the Statement of Corporate Intent, which is a document approved by the Voting Shareholders, and which is negotiated annually between RIC and the Voting Shareholders. The Board is required to meet at least 10 times per year, or additionally as special circumstances require. The Chairman of the Board is Rod Sims. Directors are appointed for a term of two years from 1 January 2001 to 31 December The remuneration of each nonexecutive Director is determined by the Voting Shareholders. Board Committees The Board has three Committees: Audit and Risk Board Committee Human Resource and Remuneration Board Committee (established at 6 December 2001 Board Meeting) Safety Board Committee The Board resolved to establish a Human Resource and Remuneration Committee due to the number of issues facing RIC over the coming 12 to 18 months, with the introduction of a new Enterprise Bargaining Agreement, the introduction of the new business model and the aligning of salaries and gradings between the merged organisations. Currently, the members of the Committees are: Audit and Risk Board Committee: Barbara Ward (Chair) and Rod Sims Human Resource and Remuneration Board Committee: Peter Barron (Chair) and Ross Cribb Safety Board Committee: Dean Pritchard (Chair), Liza Carver and Harold Dwyer The Committees assist in the good governance of RIC, allow for detailed consideration of major issues, provide advice on sensitive matters to the Board and examine any matter that may be referred to it by the Board. The Audit and Risk Board Committee assists the Board in discharging its responsibilities relating to: Business ethics, policies and practices Accounting policies Management and internal controls Financial reporting practices Monitoring management s processes for mitigating business and legal risks Providing a forum for communication between the Board, senior management and both the internal and external auditors, and Ensuring the integrity of the internal audit function The Chief Executive Officer, Chief Financial Officer, Manager Internal Audit, Deputy Auditor-General of NSW and the External Audit Manager from the Audit Office of NSW have a standing invitation to attend meetings, but are not members of the Committee. Major issues considered by the Committee for the year were formulating and monitoring of the Audit Plan, corruption prevention initiatives, investigation of allegations of corrupt activity, financial reporting procedures and finalisation of the accounts, and review of current and pending litigation. The Human Resource and Remuneration Board Committee assists the Board in discharging its responsibilities relating to: The maintenance and growth of RIC s workforce capability necessary to support the Corporate objectives The planning of RIC s workforce deployment including the management of RIC s establishment The promotion of an efficient and effective workforce Staff wellbeing and sound corporate culture Industrial Relations outcomes that support Corporate objectives Succession planning and team work Undertaking other related tasks as directed by the Board Providing a forum for communication between the Board and senior management The Chief Executive Officer and the General Manager People and Performance have a standing invitation to attend meetings, but are not members of the Committee. Staff from the People and Performance Division may be invited to attend the meetings. Major issues considered by the Committee for the six month period since its establishment were workforce planning and training initiatives, implementation of the Enterprise Bargaining Agreement 2002 and the establishment of the RIC College. 26

29 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 The Safety Board Committee assists the Board in discharging its responsibilities relating to: Safety policies Key performance measures and how they embrace RIC s safety policies Proposals for safety initiatives Safety audit reports generated, and the monitoring of issues raised Undertaking other related tasks as directed by the Board Providing a forum for communication between the Board and senior management The Chief Executive Officer and the General Manager Safety have a standing invitation to attend meetings, but are not members of the Committee. Staff from the Safety Division and the General Manager Engineering may be invited to attend the meetings. Major issues considered by the Committee for the year were the monitoring of the Safety Plan, Safeworking Training programs, review of Safeworking Rules and Worksite Protection Improvement strategies. The membership of the Committees was altered on the establishment of the Human Resource and Remuneration Board Committee. Ethical Standards The Board recognises ethical management as a vital element of good business practice and has adopted a Code of Conduct based on the Australian Institute of Company Directors which promotes good business practice. Each Board meeting notes any potential conflict of interest that may occur. Directors Accountabilities to Shareholders Part 4 of the State Owned Corporations Act 1989 outlines the role of the Voting Shareholders and the accountabilities to them of Directors. In summary, Directors must: Supply to Voting Shareholders such information relating to affairs of RIC as they may from time to time request Agree with the Voting Shareholders on an annual Statement of Corporate Intent Report on the operations of RIC on a six-monthly basis Deliver an Annual Report, including audited financials, within four months of the end of the financial year. Directors Meetings The number of and attendance at Directors meetings and meetings of the Board Committees during the year were: BOARD MEETINGS AUDIT AND RISK BOARD HUMAN RESOURCE AND SAFETY BOARD Rod Sims COMMITTEE 2 0MEETINGS REMUNERATION BOARD COMMITTEE MEETINGS COMMITTEE MEETINGS* Held** Attended Held** Attended Held** Attended Held** Attended Rod Sims Peter Barron Liza Carver Ross Cribb Harold Dwyer Dean Pritchard Barbara Ward * Established 6 December 2001, necessitating changes in the membership of Committees ** Reflects the maximum number of meetings the directors were eligible to attend 27

30 BOARD OF DIRECTORS Rod Sims BComm(Hons), MEc Chairman Liza Carver BEc, LLB, LLM Harold Dwyer Dip Ind Law, Dip Ind Law and Lab Rel, Dip Ind Rel and Personnel Mgt Barbara Ward BEc, MPEc Member of the Audit and Risk Board Committee Mr Sims is a Director of Port Jackson Partners Limited, Chairman of Inglewood Farms Pty Ltd and formerly the Chairman of the Rail Access Corporation, Deputy Secretary (Domestic Policy) in the Department of the Prime Minister and Cabinet, and the Deputy Secretary (Transport) Department of Transport and Communications Canberra. Member of the Safety Board Committee Ms Carver was formerly a Director of Rail Access Corporation, and is a partner in the law firm Gilbert and Tobin. She was formerly an Associate Commissioner with the Australian Competition and Consumer Commission and a member of the NSW Independent Pricing and Regulatory Tribunal, and a member of the NSW Premier s Council for Women between 1995 and Member of the Safety Board Committee Mr Dwyer was formerly a Director of Rail Services Australia, and is currently a Director of the NSW Housing Society Group Ltd. He has over 50 years experience in the rail industry and is the retired Federal President of the Public Transport Union, retired NSW Branch Secretary Public Transport Union and has held various positions in the State Rail Authority. Chair of the Audit and Risk Board Committee Ms Ward was formerly a Director of Rail Services Australia, and is currently Chairman of Country Energy, a Director of the Commonwealth Bank of Australia and Australia Day Council of NSW. She is also a Board Member of Allens Arthur Robinson and a Trustee of the Sydney Opera House Trust. Peter Barron Ross Cribb OBE, FCIT Dean Pritchard BEng (Civil) Chair of the Human Resource and Remuneration Board Committee Mr Barron is a Director of Rivkin Financial Services Pty Limited and formerly a Director of Rail Services Australia. Mr Barron has extensive experience in media and policy advice to State and Federal government and the private sector. Member of the Human Resource and Remuneration Board Committee Mr Cribb was formerly a Director of Rail Access Corporation, is Chairman of TNT Australia Pty Ltd Advisory Board, Deputy Chairman of Tempo Services Limited and a member of The Australian Schools Rugby Union Foundation. He was awarded his OBE for contributions to the transport industry and is a Fellow of the Chartered Institute of Transport. Chair of the Safety Board Committee Mr Pritchard was formerly a Director of Rail Services Australia, and is currently Chairman of ICS Global Limited and a Director of OneSteel Limited. He has over 30 years experience in the engineering and construction industry. 28

31 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 FINANCIAL REPORT for the year ended 30 June 2002 Contents Statement of Financial Performance for the Twelve Months Ended 30 June Statement of Financial Position as at 30 June Statement of Cash Flows for the Twelve Months ended 30 June Notes to the Statement of Cash Flows for the Twelve Months ended 30 June Notes to and forming part of the Financial Report 1. Statement of Significant Accounting Policies Revenue Expenses Income Tax Expense Dividends Cash Assets Receivables Inventories Property, Plant and Equipment Other Assets Payables Tax Liabilities Provisions Interest Bearing Liabilities Capital Commitments Contingent Liabilities Consultants Superannuation Financial Instruments Events Occurring After Balance Date Joint Ventures Significant Items Directors Remuneration Controlled Entity Investment in Associated Company Segment Reporting Reporting Exemptions 55 Statement by Directors 55 Independent Audit Report 56 Note: This report covers Rail Infrastructure Corporation s first full year of operations. The comparative figures included in this report cover the six month period ended 30 June 2001, i.e. from the date of the establishment of the Rail Infrastructure Corporation, being 1 January 2001, to the date of the first Financial Report, 30 June Establishment and Functions of Rail Infrastructure Corporation Rail Infrastructure Corporation (RIC) was constituted by the Transport Administration Amendment (Rail Management) Act 2000 effective from 1 January 2001, as a statutory State Owned Corporation in accordance with the State Owned Corporations Act The Corporation was established by merging the assets, rights and liabilities of the Rail Access Corporation and Rail Services Australia. The objectives of the Corporation, as specified in the Transport Administration Act 1988, are: (1) The principal objective of Rail Infrastructure Corporation is to ensure that the NSW rail network enables safe and reliable passenger and freight services to be provided in an efficient, effective and financially responsible manner. (2) The other objectives of Rail Infrastructure Corporation are: (a) to promote and facilitate access to the NSW rail network in accordance with the NSW Rail Access Regime, and (b) to be a successful business and, to that end: (i) to operate at least as efficiently as any comparable business, and (ii) to maximise the net worth of the State s investment in the Corporation, and (c) to exhibit a sense of social responsibility by having regard to the interests of the community in which it operates, and (d) where its activities affect the environment, to conduct its operations in compliance with the principles of ecologically sustainable development contained in section 6 (2) of the Protection of the Environment Administration Act 1991, and (e) to exhibit a sense of responsibility towards regional development and decentralisation in the way in which it operates, and (f) to maintain reasonable priority and certainty of access for railway passenger services. 29

32 30 STATEMENT OF FINANCIAL PERFORMANCE for the year ended 30 June months 6 months ended ended 30 June June 2001 Note $ 000 $ 000 Revenues from ordinary activities 1(e), 2 1,155, ,705 Expenses from ordinary activities, excluding borrowing costs and superannuation expenses 3 (1,108,418) (569,233) Borrowing cost expense 1(u) (5,151) (2,701) Superannuation net effect recognised 19(b) (61,061) 1,153 Share of losses of associates and joint ventures accounted for using the equity method 22 (1,414) (602) Profit/(Loss) from Ordinary Activities Before Income Tax Expense and Non-Current Asset Writedown 9 (20,414) 2,322 Non-Current Asset Writedown (47,840) Loss from Ordinary Activities Before Income Tax Expense (20,414) (45,518) Income Tax Expense National Taxation Equivalent Regime (NTER) 1(j), 4 (1,167) Loss from Ordinary Activities After Income Tax Expense (20,414) (46,685) Net Loss Attributable to Members of RIC 15(b) (20,414) (46,685) Total changes in equity other than those resulting from transactions with owners as owners (20,414) (46,685) The accompanying notes form an integral part of this Report. 30

33 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 STATEMENT OF FINANCIAL POSITION as at 30 June 2002 Current Assets 30 June June 2001 Note $ 000 $ 000 Cash assets 6 144, ,697 Receivables 7 76,039 99,051 Inventories 8 37,461 35,868 Other 10 3,451 2,597 Total Current Assets 261, ,213 Non-Current Assets Property, plant and equipment 9 802, ,047 Inventories 8 13,863 15,352 Investment accounted for using equity method 22 1,188 1,258 Other 10 17,333 68,136 Total Non-Current Assets 834, ,793 TOTAL ASSETS 1,095,842 1,143,006 Current Liabilities Payables , ,939 Interest bearing liabilities 14 47,875 32,000 Tax liabilities 12 3,343 Provisions 13 67,054 66,731 Total Current Liabilities 265, ,013 Non-Current Liabilities Interest bearing liabilities 14 32,151 48,019 Provisions , ,245 Total Non-Current Liabilities 178, ,264 TOTAL LIABILITIES 443, ,277 NET ASSETS 652, ,729 EQUITY Capital two issued ordinary shares fully paid , ,414 Accumulated losses 15 (67,099) (46,685) TOTAL EQUITY 652, ,729 The accompanying notes form an integral part of this Report. 31

34 STATEMENT OF CASH FLOWS for the year ended 30 June 2002 Cash flows from operating activities 12 months 6 months ended ended 30 June June 2001 Note $ 000 $ 000 Receipts from customers 758, ,265 NSW Government Community Service Obligations (CSOs) 2 246, ,933 Payments to suppliers and employees (891,941) (434,702) Interest received 5,256 4,478 Tax paid Interest paid (3,343) (5,034) (2,701) Net cash flows from operating activities (refer to (b) below) 109,965 84,273 Cash flows from investing activities Payments for property, plant and equipment (148,236) (27,275) Payments for operator and government funded projects (136,319) (127,334) Proceeds from the disposal of investments in joint venture entities 2 2,750 (Payments)/repayment loans to joint venture entities 484 (1,951) Proceeds from sale of property, plant and equipment 2 10,506 4,080 Proceeds for operator and government funded projects 118,533 82,417 Net cash flows from investing activities (152,282) (70,063) Cash flows from financing activities Repayment of borrowings (125) Net cash flows from financing activities (125) Net increase/(decrease) in cash held (42,442) 14,210 Cash Opening Balance 186, ,487 Cash Closing Balance (refer to (a) below) 144, ,697 The accompanying notes form an integral part of this Report. 32

35 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 NOTES TO THE STATEMENT OF CASH FLOWS for the year ended 30 June 2002 (a) Reconciliation of cash 30 June June 2001 $ 000 $ 000 The closing cash balance as shown in the Cash Flow Statement is reconciled to the related items in the Statement of Financial Position in Note 6: Cash on hand and held at bank 16,002 45,303 Short term interest bearing deposits 128, , , ,697 (b) Reconciliation of operating result after tax to net cash from operating activities 12 months 6 months ended ended 30 June June 2001 Operating Loss after tax (20,414) (46,685) Non-cash items: Profit from sales of property, plant and equipment (877) (866) Depreciation 46,723 21,965 Taxation expense 1,167 Share of losses of associates and joint ventures not received as dividends or distributions 1, (Profit) on divestment of joint venture entity (2,594) Non-current asset writedown 47,840 Net movement in assets and liabilities: Decrease in receivables 23,012 27,384 (Increase) in inventories (104) (14,138) (Increase)/decrease in other assets 47,965 (4,319) Increase in creditors and provisions 14,840 51,323 Net cash from operating activities 109,965 84,273 (c) Non-cash financing and investing activities Department of Transport (DOT) made a non-cash capital grant of $24.0 million representing expenditure on the Parramatta Rail Link prior to 1 July The accompanying notes form an integral part of this Report. 33

36 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 1. Statement of Significant Accounting Policies (a) Background The Reporting Entity The Rail Infrastructure Corporation (RIC) was established on 1 January 2001 as a statutory State Owned Corporation under the State Owned Corporations Act 1989 by merging the Rail Access Corporation and Rail Services Australia. The assets, rights and liabilities of Rail Access Corporation and Rail Services Australia were transferred to RIC, pursuant to amendments to the Transport Administration Act The principal functions of RIC are: to hold, manage, maintain and establish rail infrastructure facilities on behalf of New South Wales, and to provide persons with access to the NSW rail network under the NSW Rail Access Regime. (b) Basis of Accounting The Financial Report is a general purpose financial report which has been prepared in accordance with the Public Finance and Audit Act (1983), the Public Finance and Audit Regulation 2000 and Australian Accounting Standards including other authoritative pronouncements from the Australian Accounting Standards Board, UIG consensus views and relevant Treasury circulars. The Financial Report also incorporates financial reporting requirements applicable to the Corporation as specified in the Annual Reports (Statutory Bodies) Act 1984 and the Annual Reports (Statutory Bodies) Regulation The Financial Report has been prepared on an accrual accounting basis using historical cost conventions except for infrastructure assets and major items of property, plant and equipment, which are recorded at valuation. Certain employee entitlement liabilities are measured at their present value. The Financial Report has been prepared on a going concern basis which assumes that the Corporation is expected to be able to pay its debts as and when they fall due and continue in operation without any intention or necessity to liquidate or otherwise wind up its operations. At 1 January 2001 the net assets of Rail Access Corporation and Rail Services Australia were transferred to the Rail Infrastructure Corporation. As there was no consideration paid upon corporatisation, the assets and liabilities were transferred at 31 December 2000 aggregate carrying value, which represented fair value at that date. This transfer, totalling $741,900,000, represented the net asset value contributed by the owner, the New South Wales Government in accordance with Treasurer s directions, and accounting standards. (c) Controlled Entity RIC has one controlled entity, Rail Services Australia (Hong Kong) Ltd, which had ceased operations as at 30 June Business transacted during the year was not material, there were no contingent liabilities and the total parent entity interest at 30 June 2002 was HK$20. Accordingly, a consolidated Financial Report for the economic entity has not been presented. (d) Foreign Currency Transactions Foreign currency items are translated to Australian currency on the following bases: transactions are converted at exchange rates approximating those in effect at the date of each transaction, there are no foreign amounts payable or receivable at the close of business at balance date. (e) Revenue Recognition Access Fees Access fees shown in the Statement of Financial Performance comprise the amounts received and receivable by the Corporation for granting operators access to the rail network during the 12 months ended 30 June Community Service Obligations (CSOs) CSO funding is received from the NSW Government to cover the cost of maintaining the non-commercial lines operated by the Corporation. Operator Funded Capital Projects Funds when received from operators relating to capital projects are recognised as developer contributions. Amounts received are credited to the Statement of Financial Performance and expensed as drawn down. Any amounts remaining unspent as at year-end are carried forward to be expended in the subsequent accounting period. Government Grants Non-refundable Government grants are recognised as revenue when they are received. Maintenance and Construction Services Revenue from infrastructure maintenance and construction services is recognised when external customers are billed. In addition, revenue is accrued for unbilled costs plus profit attributable to long term contracts based on the percentage of completion of each contract less foreseeable losses. 34

37 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 (f) Maintenance Maintenance is expensed as incurred and includes routine maintenance and major periodic maintenance on rail infrastructure. Major Periodic Maintenance (MPM) is incurred and expensed in accordance with the Corporation s ongoing Asset Management Plans (AMPs). (g) Cash Cash comprises cash on hand, deposits held at call with banks and Hourglass Investments with NSW Treasury Corporation (T CORP) which are used in the cash management function on a day to day basis. Deposits at call with the T Corp are carried at the principal amount, which is considered to be fair value, and subject to an insignificant risk of change in value. Interest is recognised in the Statement of Financial Performance as it accrues. (h) Receivables All trade debtors are recognised at nominal amounts due, less any provision for uncollectable debts. Collectability of trade debtors is reviewed on a regular and ongoing basis. Debts which are known to be bad debts are written off. A provision for uncollectable debts is raised when some doubt as to collection exists and that provision is reviewed for adequacy at balance date. The credit risk represents the carrying amount (net of any provision for uncollectable debts). (i) Prepayments Prepayments represent amounts paid in advance for services that have been expended in the current period and where the benefit will be realised in a subsequent period. Prepayments are reported on a cost basis. (j) Income Tax The Corporation is subject to the National Tax Equivalent Regime (NTER) under which it is required to pay a taxation equivalent to the NSW Government in accordance with section 20T of the State Owned Corporations Act The Corporation adopts the liability method of tax-effect accounting whereby the income tax expense shown in the Statement of Financial Performance is based on the operating profit before income tax adjusted for any permanent differences. Timing differences are brought to account as either a provision for deferred income tax (PDIT) or as an asset described as future income tax benefits (FITB) where recovery of the benefit is assured beyond reasonable doubt. Future income tax benefits arising from tax losses are not currently brought to account unless there is a virtual certainty of realisation of the benefits. In assessing virtual certainty, regard is had to: continued compliance with tax legislation, which gave rise to the tax deductions, possibility of adverse effects from changes to tax legislation, and possibility of adverse effects from changes to legislative regimes, relative to New South Wales State Owned Corporations. (k) Inventory Raw materials and spares for maintenance of infrastructure assets are stated at the lower of cost or net realisable value. Cost comprises material, labour and an appropriate proportion of fixed and variable overheads. Costs are assigned to individual items of inventory on the basis of weighted average costs. Provision is made against obsolete inventory as identified after taking into account any net realisable value. Inventory which is expected to be used after more than one year is classified as non-current. In addition to the provision for obsolescence, the level of inventory has been reviewed to determine the excess inventory not required for the expected level of future operations. A provision has been created to cover any possible losses that may result on disposal or write-off of the excess inventory. (l) Construction Work in Progress Construction work in progress, which relates to external infrastructure contracts, is carried at cost, plus profit recognised to date based on the value of work completed, less progress billings and less provision for foreseeable losses. Provision for any loss on a contract is made as soon as the loss is identified. Cost includes both variable and fixed costs directly related to specific contracts and those which can be generally attributed to contract activity or which can be allocated to specific contracts on a reasonable basis. Where the outcome of a contract cannot be reliably estimated, contract costs are expensed as incurred. Where it is probable that the costs will be recovered, revenue is only recognised to the extent of costs incurred. 35

38 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 1. Statement of Significant Accounting Policies (continued) (l) Construction Work in Progress (continued) Recognition of Profit Profit on external business is recognised on an individual contract basis using the percentage of completion method when the stage of contract completion can be reliably determined, costs to date can be clearly identified and the following can be reliably estimated: (i) (ii) total contract revenues to be received, and costs to complete. Stage of completion is measured by reference to an assessment of total labour hours and other costs incurred to date as a percentage of estimated total costs for each external contract. (m) Non-Current Assets Non-current assets include rail infrastructure assets, property, plant and equipment and other fixed assets. (i) Rail Infrastructure Assets The rail infrastructure assets include land, track, communications and signal equipment, bridges, fences and tunnels. The value of such infrastructure, previously held by the Rail Access Corporation, was transferred on 1 January 2001 to the Rail Infrastructure Corporation at fair value. Fair value has been determined by applying the Recoverable Amounts Test. The Corporation is generally not able to identify net cash inflows applicable to individual rail infrastructure assets because a group of assets working together supports the generation of net cash inflows relevant to the determination of recoverable amount. The discrete groups of rail infrastructure assets for which the Corporation can currently identify net cash are the community service assets and the commercial assets. The commercial assets comprise the Hunter Valley coal network, interstate freight lines, and telecommunications assets. These assets are valued in accordance with the net present value of their future cash flows as discounted by the Corporation s cost of capital or regulated allowable return. The community service infrastructure assets comprising the Corporation s rail network other than commercial assets were valued assuming that future access fees and Government funding will meet the costs associated with the maintenance and operations of the network with no return to the Corporation. The calculations resulted in the Corporation s community service assets having a nil value. Capital spares are valued in accordance with the value of the asset or class of asset to which it relates. Where necessary, provision for diminution in recorded cost is made to ensure that capital spares are not carried in excess of their future anticipated value to the organisation. (ii) Capitalisation Policy Property, plant and equipment is recognised if it is owned by RIC. Expenditure on the acquisition, replacement or enhancement of property, plant and equipment is capitalised. The capitalisation threshold applicable from 1 January 2001 is generally $1,000 provided the life of the asset is at least 12 months. However, all land is capitalised regardless of cost. (iii) Valuation of Non-Current Assets Property, plant and equipment were transferred from Rail Services Australia and Rail Access Corporation to the Rail Infrastructure Corporation on 1 January 2001 at their fair values, i.e. their carrying values as at 31 December 2000, which were tested using the Recoverable Amounts Test to ensure fair value. Those values were tested again at 30 June 2002 using the Recoverable Amounts Test to confirm that fair values applied. Property is revalued at least once every five years. Any revaluation increment will be credited to an asset revaluation reserve unless it is reversing a previous decrement charged to the Statement of Financial Performance in which case the increment is credited to the Statement of Financial Performance. Similarly, any revaluation decrement will be recognised as an expense in the Statement of Financial Performance unless it is reversing a revaluation increment previously credited to and still included in the balance of the asset revaluation reserve, in which case it will be debited directly to the asset revaluation reserve. (iv) Recoverable Amounts Test (RAT) RIC applies the Recoverable Amounts Test at balance date to ensure that the carrying value of non-current assets does not exceed the recoverable amount. Recoverable amounts are determined by discounting the future net cash flows using RIC s estimated long term weighted average cost of capital. 36

39 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 (v) Depreciation Depreciation of non-current assets (except land and capital work in progress which are not depreciated) is calculated on a straight-line basis over their estimated useful life commencing when the asset is first put into use or held ready for use. The expected useful lives are as follows: Buildings Rail Infrastructure Assets (including Signalling and Communication Equipment) Railway Sidings Plant, Machinery and Office Equipment Rollingstock Motor Vehicles (including heavy vehicles) Computer Equipment Quarries Leasehold Improvements 33 years 30 years 20 years 2-15 years 25 years 2-8 years 3-5 years Based on estimated production life of quarry Based on the shorter of useful life or the period of the lease. (vi) Capital Work in Progress Rail Infrastructure Corporation assets in the course of construction are classified as capital work in progress. Capital work in progress is recorded at cost. Rail Infrastructure Corporation assets in the course of construction are not depreciated nor written off until the project has been completed and commissioned. Where necessary, provision for diminution in recorded cost is made to ensure that the capital work in progress is not carried in excess of its future anticipated value to the organisation. For non-commercial rail infrastructure assets this policy results in the carrying value of such assets being reduced to nil at each balance date. (vii) Acquisition of Assets An asset is recognised if it is controlled by the Corporation. Expenditure on the acquisition of new assets is capitalised at cost where cost is determined as fair value. Additions to rail infrastructure assets are capitalised initially at cost, then written down to the lower of their historic cost and recoverable amount, where necessary. (viii)disposals Upon disposal or retirement, the book value of an item of property, plant and equipment is charged and any sales proceeds are credited to the Statement of Financial Performance. (n) Leases Leases where RIC assumes substantially all the risks and benefits of ownership of the leased property are classified as finance leases. Other leases are classified as operating leases. Operating lease assets are not capitalised. Lease payments are expensed in the period in which they are incurred, as this represents the pattern of benefits derived from the leased assets. Incentives, under a non-cancellable operating lease, received on entering an operating lease are recognised as liabilities and are amortised over the terms of the relevant lease. (o) Trade and Other Creditors Liabilities are recognised for amounts due to be paid in the future for goods or services received whether or not invoiced. Amounts owing to suppliers are settled in accordance with Corporation Policy. (p) Employee Entitlements (i) Wages, salaries, annual leave and pay in lieu of holidays worked Liabilities for wages, salaries, annual leave and pay in lieu of holidays worked are recognised, and are measured as the amount unpaid at the balance date at current pay rates in respect of employees services up to that date. (ii) Long Service Leave A liability for long service leave is recognised based on actuarial assessment, and is measured as the present value of expected future payments to be made in respect of services provided by employees up to the balance date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. 37

40 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 1. Statement of Significant Accounting Policies (continued) (p) Employee Entitlements (continued) (iii) Superannuation At the reporting date a liability or asset is recognised in respect of defined benefit superannuation funds and is measured as the difference between the present value of the employees accrued benefits and the net market value of the superannuation funds assets at that date. The Corporation s share of the employees retirement liability or prepaid superannuation in respect of the defined benefits superannuation schemes (State Superannuation Scheme, State Authorities Superannuation Scheme and State Authorities Non-Contributory Scheme) is reported as a liability or prepayment as required in the Financial Report. (iv) Technical Breach of Public Finance and Audit Regulation 2000 The Public Finance and Audit Regulation 2000 requires deferred employee entitlements to be disclosed on the face of the Statement of Financial Performance. RIC has not complied with this requirement. However, in compliance with accounting standards the required data is shown by way of note under Other Provisions (Note 13). (q) Redundancy Contributions received from the Department of Transport to fund payments to employees electing to take voluntary redundancy are recognised as Government contributions when received. Severance payments and payments in lieu of notice are recognised as severance payments expense. Payments for annual leave, long service leave and pay in lieu of holidays worked which are paid on redundancy are charged to the respective provision. (r) Environmental Restoration and Reparation The Corporation is potentially liable for claims for environmental damage emanating from its rail infrastructure including any environmental damage directly attributable to operators. Where environmental damage can be attributed to an operator, the Corporation will seek to recover such costs in full. Provision is made for the estimated liability arising under specific environmental legislation taking into account the conditions of land and quarrying operations and any future environmental rectification and estimated quarry restoration costs. The liability is based on the current best estimate resulting from site investigations of restoration work required. This provision is reported as a diminution in the value of the respective land holdings. (s) Restructuring Provision A liability for restructuring is recognised when there is a demonstrable management commitment to a restructuring of activities and when a reliable estimate of the liability can be made. (t) Insurance Appropriate insurances are purchased to cover exposures arising out of normal business operations. The insurance policies purchased by the Corporation have varying excess amounts for each policy. Provision is made for the estimated liability for the excess at balance date. Financial responsibilities for minor and predictable losses, which are not cost effective to insure, are retained. The Rail Infrastructure Corporation is a licensed self-insurer for workers compensation claims under the New South Wales Workers Compensation Act. Provision is made for future costs associated with workers compensation and other liability claims occurring in the financial year. The provision is assessed at present value by an independent actuary. Recoveries under insurance arrangements are treated as receivables. (u) Interest Bearing Liabilities In accordance with Treasury directions all loans are valued at Current Capital Value. Current Capital Value is the face value of the debt less unamortised discount or plus unamortised premiums. The discounts or premiums are treated as an interest expense or income, respectively, and amortised over the term of the debt. Borrowing costs are recognised as expenses in the period in which they are incurred and include (except where they are included in the costs of qualifying assets): interest on short term and long term borrowings, amortisation of discounts or premiums relating to borrowings. (v) Capital Rail Infrastructure Corporation was established on 1 January Two shares were issued and are currently held, one by the Premier and one by the Treasurer of New South Wales. Capital represents net assets transferred from Rail Access Corporation and Rail Services Australia. 38

41 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 (w) Joint Ventures Details of all joint ventures are set out in Note 22 and are categorised as follows: (i) Joint Venture Operations The proportionate interests in the assets, liabilities, revenue and expenses of any joint venture operation has been included in the Financial Report under the appropriate headings. (ii) Joint Venture Entities All joint venture entities, including joint venture partnerships, are accounted for using the equity accounting method. Under this method RIC s share of a joint venture entity s net profit or loss after tax is recognised in the Statement of Financial Performance and the appropriate proportion of any movement in reserves is recognised directly in the Corporation s consolidated reserves. (x) Accounting for Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except: the amount of GST incurred that is not recoverable from the Australian Taxation Office (ATO) is recognised as part of the cost of acquisition of an asset or as part of an item of expense, receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (y) Comparatives Comparative figures are, where appropriate, reclassified so as to provide a meaningful comparison with the current year. Comparative figures reported are the consolidated figures from the Statement of Financial Performance for the six months ended 30 June 2001 and from the Statement of Financial Position as at 30 June (z) Roundings All amounts have been rounded to the nearest thousand dollars unless indicated otherwise. Note 2. Revenue Revenue from ordinary activities 12 months 6 months ended ended 30 June June 2001 $ 000 $ 000 Access Fees from operators 561, ,951 Maintenance and construction services revenue 86,416 34,599 NSW Government Community Service Obligations (CSOs) 246, ,933 Operator and Department of Transport (DOT) funded capital projects (refer (a)) 160,306 82,417 Operator and Department of Transport (DOT) funded feasibility studies 1,223 Traction energy revenue 29,262 15,817 Workshop services revenue 3,269 6,145 Telecommunication services revenue 21,076 12,930 Proceeds from assets sales 10,506 4,080 Management Fees 6,649 Sale of quarry products 3,898 3,125 Sale of scrap 2,691 1,170 Share of proceeds from sale of leased vehicles Rental income 1, Proceeds from divestment from sale of joint venture interest 2,750 Commissions and rebates Advertising Premium amortisation Interest revenue 5,285 4,478 Other revenue 10,589 3,379 Total Revenue from Ordinary Activities (excluding shares of equity accounted losses of associates and joint venture partnerships) 1,155, ,705 (a) This includes a non-cash grant of $ million from Department of Transport relating to the transfer of Parramatta Rail Link expenditure prior to 1 July

42 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 3. Expenses Expenses from ordinary activities: 12 months 6 months ended ended 30 June June 2001 Note $ 000 $ 000 Salaries and wages 353, ,071 Annual Leave 29,003 11,177 Long Service Leave 13,173 9,108 Workers Compensation 21,441 8,985 Operator/Government Funded Capital Projects write off of works relating to non-commercial Infrastructure 160, ,165 Materials 151,702 61,274 Subcontractors 104,092 65,650 Network control and communications 77,189 36,520 Plant and Equipment hire 42,886 23,669 Depreciation 9 46,723 21,965 Bulk electricity 31,267 14,944 Motor vehicle expenses 11,332 7,393 Operating leases 13,710 5,512 Legal expenses 13,822 6,714 Insurance premium expenses 8,883 3,255 Doubtful debts (86) (1,037) Bad debts 206 Audit Remuneration for audit services provided by The Audit Office of NSW Disposal of joint venture interest 156 Other 28,258 7,483 Expenses from ordinary activities, excluding borrowing costs and superannuation expenses 1,108, ,233 Gains Net profit on disposal of property, plant and equipment Proceeds from asset sales 2 10,506 4,080 Carrying amount of property, plant and equipment (9,629) (3,214) Gain on Sale of Property, Plant and Equipment Note 4. Income Tax Expense The prima facie tax on operating profit differs from the income tax provided in the accounts as follows: Loss from Ordinary Activities before Income Tax Expense (20,414) (45,518) Prima facie tax benefit thereon at 30% (2001: 34%) (6,124) (15,476) Tax Effect of Permanent and Other Differences Non-deductible expenditure 38,059 13,688 Superannuation (refer explanation (a) below) 9,739 (2,797) Depreciation (non-commercial infrastructure) (144,981) (109,935) Non-current asset writedown 16,265 Income Tax Expense (Benefit) after Permanent Differences (103,307) (98,255) Amendment to prior year return 1,167 Future Income Tax Benefit not brought to account (including tax depreciation charge relating to non-commercial rail infrastructure) 103,307 98,255 Total Income Tax Attributable to Profit from Ordinary Activities 1,167 40

43 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Note 4. Income Tax Expense (continued) Tax effect of timing difference not brought to account 12 months 6 months ended ended 30 June June 2001 $ 000 $ 000 Amount brought forward 755, ,322 Timing differences arising during the year not brought to account 8,174 6,285 Timing differences adjustment relating to prior years 13,031 3,144 Re-statement of deferred tax balances due to change in tax rates (29,986) Amounts applied against current year s income tax expense 103,307 98,255 Amounts Available to be Carried Forward to Future Years (b) 879, ,020 (a) RIC was advised by the Superannuation Administration Corporation that the amount of RIC s net market value of scheme assets as at 30 June 2002 exceeded its actuarially determined liability at that date. The excess was recognised as an asset, Prepaid Superannuation, which is being amortised over time. (a) As the amortisation reflects a superannuation contribution holiday and no actual superannuation payments are made, amortisation expense will not be deductible for tax purposes. Accordingly, the balance in the prepaid superannuation account will not be deductible for taxation purposes. (b) The amounts involved are significant and are likely to shelter the Corporation from income tax for the foreseeable future. Note 5. Dividends No dividends are payable. Note 6. Cash Assets Current $ 000 $ 000 Cash at bank 15,947 45,239 Cash on hand NSW Treasury Corporation in Hourglass investment at market value 128,253 55,777 NSW Treasury Corporation deposit at call 83,606 Standard and Chartered Bank in Hong Kong fixed deposit 2,011 Total Cash Assets 144, ,697 Deposits can be withdrawn within one day of the request to withdraw. Note 7. Receivables Current Trade debtors 77, ,635 Provision for uncollectable debts (6,670) (13,635) 71,027 91,000 GST receivable 4,673 7,862 Other debtors Total Receivables 76,039 99,051 41

44 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 8. Inventories Note $ 000 $ 000 Current Raw materials and stores, at cost 36,684 36,378 Provision for Obsolescence (1,125) (1,988) 35,559 34,390 Work in progress 1, Construction work in progress (see (a) below) 1(l) Total Current Inventories 37,461 35,868 Non-Current Raw materials and stores, at cost 13,805 17,734 Raw materials and stores, at net realisable value 110 Provision for Excess Stock (52) (2,382) Total Non-Current Inventories 13,863 15,352 (a) Construction work in progress comprises: Contract costs incurred to date Profit recognised to date 62 Total Contract Value Less: Provision for Foreseeable Losses on Construction Contracts (see (b) below) (151) Net Construction Work in Progress (b) Foreseeable losses relate to losses expected on external construction projects underway but yet to be completed. Note 9. Property, Plant and Equipment Land* At fair value 72,290 73,109 Less: Provision for Environmental Rehabilitation 1(r) (26,149) (27,369) Total Land 46,141 45,740 Buildings At fair value 38,201 40,771 Accumulated depreciation (5,641) (1,866) 32,560 38,905 At cost 5,215 Accumulated depreciation (467) 4,748 Total Buildings 37,308 38,905 Trackwork and Infrastructure At fair value 577, ,831 Accumulated depreciation (36,580) (15,676) 540, ,155 At cost 3,759 Accumulated depreciation (112) 3,647 Total Trackwork and Infrastructure (refer Note 21) 544, ,155 * Land values The book value of land represents the net value after estimated environmental reparation costs of $ million (2001: $ million) have been deducted. 42

45 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Note 9. Property, Plant and Equipment (continued) Note $ 000 $ 000 Plant, Machinery and Office Equipment At fair value 25,780 34,252 Accumulated depreciation (10,890) (4,621) 14,890 29,631 At cost 22,685 Accumulated depreciation (3,503) 19,182 Total Plant, Machinery and Office Equipment 34,072 29,631 Rolling Stock At fair value 12,293 14,327 Accumulated depreciation (1,542) (577) 10,751 13,750 At cost 4,812 Accumulated depreciation (223) 4,589 Total Rolling Stock 15,340 13,750 Motor Vehicles At fair value 20,497 30,431 Accumulated depreciation (7,386) (1,515) 13,111 28,916 At cost 31,740 Accumulated depreciation (2,750) 28,990 Total Motor Vehicles 42,101 28,916 Quarries At fair value 2,811 2,916 Accumulated depreciation (530) (201) 2,281 2,715 At cost 2,761 Accumulated depreciation (9) 2,752 Total Quarries 5,033 2,715 Capital Work in Progress at cost 1(m)(vi) 259, ,400 Less: Diminution (181,840) (122,165) Net Capital Work in Progress at cost 77,836 75,235 Total Property, Plant and Equipment 802, ,047 Recoverable Amount Test The valuation of the non-current assets is subject to the Recoverable Amounts Test (refer Note 1(m)(iv)). 43

46 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 9. Property, Plant and Equipment (continued) Reconciliations Carrying Additions Disposals Recoverable Other Depreciation/ Transfers/ Carrying Amount at Amounts Adjustments Amortisation Capitalisation Amount at 1 July 2001 Test (see notes 30 June Adjustment below) 2002 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Land 45,740 (839) 1, ,141 Buildings 38,905 (256) (4,216) 2,875 37,308 Trackwork and Infrastructure 499,155 12,589 (22,256) 54, ,421 Plant, Machinery and Office Equipment 29, (3,695) (10,653) 18,229 34,072 Rolling Stock 13,750 (189) (1,227) 3,006 15,340 Motor Vehicles 28, (4,554) (8,023) 25,741 42,101 Quarries 2,715 (96) (348) 2,762 5,033 Capital Work in Progress 75, ,459 (182,292) (107,566) 77,836 Total 734, ,629 (9,629) (181,072) (46,723) 802,252 Recoverable Amounts Test In considering the valuation of infrastructure and property, plant and equipment as at 30 June 2002, no adjustments were made to reduce the carrying value to recoverable amount, on the grounds that the recoverable amount exceeded carrying value at June Other Adjustments Other adjustments against Land relate to the Provision for Environmental Rehabilitation. Other adjustments against Capital Work in Progress relate to the diminution of non-commercial capital $ million (2001: $ million) and expensing of non-capital items $0.451 million $ 000 $ 000 Note 10. Other Assets Current Prepayments 3,251 2,397 Loans to joint venture entities Total Current Other Assets 3,451 2,597 Non-Current Prepaid superannuation contributions (Note 19) 11,117 59,889 Prepayments 1,530 1,577 Loans to joint venture entities 4,686 6,670 Total Non-Current Other Assets 17,333 68,136 Note 11. Payables Current Trade creditors 34,876 33,648 Other creditors and accruals 115, ,291 Total Payables 150, ,939 Note 12. Tax Liabilities Current Provision for Taxation 3,343 44

47 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Note 13. Provisions Note $ 000 $ 000 Current Employee Entitlements (a) 32,934 36,607 Workers Compensation (b) 11,782 12,249 New Southern Railway Asset Replacement Provision (c) 6,098 3,235 Environmental Rectification 1(r) Severance Provision 650 1,412 Legal Claims 12,990 8,040 Restructuring 800 Warranty Provision 1, Other 688 2,930 Total Current Provisions 67,054 66,731 Non-Current Employee Entitlements (a) 108,539 89,132 Workers Compensation (b) 25,827 17,526 Quarry Restoration 4,789 4,627 Legal Claims 6,871 2,960 Total Non-Current Provisions 146, ,245 (a) Employee Entitlements An actuarial assessment of the non-current liability effective at 30 June 2002 for long service leave was carried out in July 2002 by William M. Mercer Pty Ltd. Major assumptions made were: Net future increase in salary and wage rates and interest rate used for discounting (% per annum) 1.5% Period used to measure present values of future payments (years) 10 years The value of annual leave and pay in lieu of public holidays worked, as determined by RIC, is also included in employee entitlements. (b) Workers Compensation Rail Infrastructure Corporation has been granted a self-insurers licence by the WorkCover Authority pursuant to section 211 of the Workers Compensation Act As a condition of that licence Rail Infrastructure Corporation maintains an excess of loss (Workers Compensation) insurance policy for any claims exceeding $1,000,000. A provision is maintained to cover claims made or likely to be made by employees up to $1,000,000. The liability at 30 June 2002 has been actuarially assessed by McMahon Actuarial Services Pty Ltd. The licence is renewed on an annual basis subject to satisfactory performance by Rail Infrastructure Corporation in management of Occupational Health, Safety and Rehabilitation and Worker s Compensation. (c) The New Southern Railway Asset Replacement Provision (as per vested contract) The conditions of the contract requires Rail Infrastructure Corporation to provide an amount of $646,936 on a quarterly basis for five years after practical completion date of 3 February The distribution of any credit balances of the provision at the termination of the contract will be split equally between Rail Infrastructure Corporation and the maintenance provider. 45

48 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 14. Interest Bearing Liabilities $ 000 $ 000 (a) Total Borrowings Borrowings Funds raised from T-Corp loan bonds 80,000 80,000 Add: Discounts Less: Premium (388) (388) Repayment of Borrowings (125) Face Value of Borrowings 80,245 80,370 Unamortised Discount on Borrowings (254) (490) Unamortised Premium on Borrowings Current Capital Value of Borrowings 80,026 80,019 Current Interest Bearing Liabilities 47,875 32,000 Non-Current Interest Bearing Liabilities 32,151 48,019 Total Borrowings 80,026 80,019 Discounts Amortised Unamortised current portion Unamortised non-current portion Total Discounts Premium Amortised Unamortised current portion Total Premium (b) Maturity Profile Not later than one year 47,875 32,000 Later than one year, not later than five years 32,151 48,019 Total Borrowings 80,026 80,019 (c) Unused Financing Arrangements Unrestricted access was available at balance date to the following lines of credit: Credit standby arrangements As at 30 June 2002 As at 30 June 2001 Total Facilities Used Unused Total Facilities Used Unused $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Bank overdraft facility 100, , , ,000 Temporary borrowing facility 60,000 60,000 Total 100, , , ,000 46

49 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Note 15. Capital $ 000 $ 000 Share Capital Two issued ordinary shares fully paid held by the Premier and the Treasurer. 719, ,414 Movements: (a) Share Capital Share capital at beginning of financial period 719, ,900 Writeback of dividend for period ended 31 December ,164 Non-Current Asset Writedowns* (27,650) Share Capital at end of financial year 719, ,414 * Relates to adjustment of the fair value of some non-current assets transferred to Rail Infrastructure Corporation on 1 January (b) Accumulated Losses Accumulated Losses at beginning of financial period (46,685) Loss attributable to members of RIC for the 12 months to end of financial period (20,414) (46,685) Accumulated Losses at end of financial year (67,099) (46,685) Note 16. Commitments (a) Expenditure Agreements (i) Operating Lease Commitments Operating lease expenditure (representing non-cancellable operating leases) contracted for is payable as follows: Payable not later than one year 14,805 12,066 Payable later than one year, not later than five years 52,845 37,063 Payable later than five years 16,043 Total Operating Lease Commitments 83,693 49,129 The above operating commitments relate to the rental of properties, computers and other business equipment. (ii) Finance Lease Commitments RIC has no commitments under finance leases as at 30 June 2002 (iii) Capital Expenditure Commitments Capital expenditure contracted for at balance date is payable as follows: Payable not later than one year 19,891 13,139 Payable later than one year, not later than five years 18,116 Payable later than five years 19,752 Total Capital Expenditure Commitments 57,759 13,139 (a) The above capital expenditure commitments exclude any post balance date commitments relating to the Parramatta Rail Link. Please refer to Note 21. (b) The above capital commitments relate to the purchase of major track maintenance equipment, minor plant and equipment and motor vehicles. (iv) Other Operating Expenditure Commitments, excluding Commitments for Supply of Inventories Other operating expenditure commitments, excluding commitments for supply of inventories contracted for is payable as follows: Payable not later than one year 37,268 34,491 Payable later than one year, not later than five years 8,038 5,623 Payable later than five years 1,038 Total Other Operating Expenditure Commitments 46,344 40,114 (a) Excluded from the above is the Network Control Agreement with SRA which amounts to approximately $ million on an annual basis. This Agreement is currently being revised to reflect the vesting of metropolitan network control activities to State Rail. (b) The above other operating commitments relate to infrastructure maintenance contracts, computer maintenance, software licences and facility agreements. Contingent Assets The total commitments as per the above note include input tax credits of $ million that are expected to be recoverable from the Australian Taxation Office. 47

50 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 16. Commitments (continued) (b) Revenue Agreements Community Service Obligation Funding The value of funding received in the six months ended 31 December 2001 was $ million. On 1 January 2002, the Corporation entered into a 5 year 6 month contract with the Department of Transport to underwrite the loss of the non-commercial rail lines. The value of this contract to the Corporation is $1.567 billion. As at 30 June 2002, the value of this contract over the remaining 5 years is $1.425 billion. Maintenance expenditure against this Country Network CSO for the six months ended 30 June 2002 exceeded the CSO received. Communication Services Agreement The Corporation, through its telecommunications business Argus, has entered into an 11 year agreement with SRA to provide the following broadband virtual circuit network services: (i) Railsafe CCTV Services, and (ii) LAN Services. The value of the contract to the Corporation over the 11 year period is $ million. As at 30 June 2002, the value of the contract over the remaining 7 years 10 months period is $ million (2001: $ million). Contingent Liability The total expected revenue as per the communication services agreement note include input tax debits of $5.017 million that are expected to be payable to the Australian Taxation Office. Rail Infrastructure Access Agreements The Corporation has entered into multi-year rail infrastructure access agreements with its customers. The dollar value of the business generated by the agreements to the Corporation each year depends on the rates charged, which are negotiated annually over the life of the agreement, and the annual level of customer usage. Note 17. Contingent Liabilities (a) Rail Infrastructure Corporation had secured performance guarantees and letters of credit to customers for maintenance and construction services performed totalling $ million (2001: $ million) at 30 June (b) As a result of the partnership arrangement for the Transfield RSA Joint Venture the several liability of RIC in the event of default by Transfield totals $1.128 million (2001: $1.596 million). (c) Rail Infrastructure Corporation has a secured guarantee for $ million (2001: $ million) with WorkCover Authority as required for workers compensation self insurance obligations. (d) Pursuant to the terms of the Environmental Licences issued to RIC by the Environment Protection Agency is the undertaking of activities related to noise in train operations and infrastructure. The cost of these activities cannot be reliably measured at this time. There are no other contingent liabilities as at 30 June Note 18. Consultants Consultants are regarded (in accordance with the guidelines issued by the Public Employment Office) as temporary engagements of a professional, technical or general management nature where the outcomes are not well defined at the outset and where advice is provided on options to be considered by RIC management for decision making purposes. Expenditure on these services for the 12 months ended 30 June 2002 was $275,326 (six months ended 30 June 2001: $469,604). The definition excludes other professional engagements and short term contract employees and contractors working under direct supervision. These include requirements for specialist tasks where the required expertise is not available within Rail Infrastructure Corporation, for transitional arrangements not requiring permanent staffing, and to assist with major reform and change management programs. 48

51 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Note 19. Superannuation (a) Retirement Benefits As at 30 June 2002, Rail Infrastructure Corporation s Superannuation liability under each of its defined benefit schemes, was advised by Treasury as fully funded. The Actuary for Pillar Administration as at 30 June 2002 has assessed RIC s liability under the State Authorities Superannuation Scheme (SASS), the State Authorities Non-Contributing Superannuation Scheme (SANCS) and State Superannuation Fund (SSF) as detailed below: 30 June June 2001 Reserve Liability Surplus Reserve Liability Surplus $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 SASS 281, ,796 9, , ,745 53,563 SANCS 38,052 37,044 1,008 39,038 33,955 5,083 SSF 5,524 5, ,221 3,978 1, , ,178 11, , ,678 59,889 The reserve represents the net market value of assets held by the schemes to meet future benefit payments, the liability represents the present value of employees accrued benefits and the surplus represents the excess of the reserve over the liability. The 30 June 2002 assessment of the funds satisfies the requirements of AAS 25 Financial Reporting by Superannuation Plans. The assumptions derived independently by the appointed actuary, William M. Mercer Pty Ltd, in the assessment were as follows: 2002/ / /2005 and thereafter % % % Rate of investment return (after tax and investment-related expenses) Rate of general salary increase (a promotional scale applies) Rate of increase in CPI The statistical assumptions can be provided on request from Pillar Administration. The membership databases used in this year s assessment are those as at 31 January $ 000 $ 000 (b) Operating Expenses Increase/(decrease) in superannuation reserve (48,772) 8,229 Amortisation of prepaid superannuation expense 16,310 7,517 Net movement after amortisation of prepaid superannuation expense (32,462) 15,746 Superannuation expenses (28,599) (14,593) Net Effect Recognised in the Statement of Financial Performance (61,061) 1,153 Superannuation contributions throughout the 12 months ended 30 June 2002 were provided for on a fully funded basis and as at 30 June 2002 formal advice received from the Pillar Administration Corporation indicated that an overfunding position amounting to $ million (2001: $ million) existed. The decrease of $ million (2001: $ million increase) takes into account the effect of the amortisation of prepaid superannuation expense of $ million (2001: $7.517 million) and has been noted as a significant item (see Note 23). 49

52 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 20. Financial Instruments (a) Interest Rate Risk The Corporation s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities at the balance date, are as follows: 2002 Floating Fixed Interest Maturing in: Non- Total Weighted Interest 1 Year or Over 1 to Interest Average Rate Less 5 Years Bearing Effective Interest Rate $ 000 $ 000 $ 000 $ 000 $ 000 % Financial Assets (Current and Non-Current) Cash assets 144, , Receivables 76,039 76,039 N/A Other assets ,486 4, Total Financial Assets 144, , ,180 Financial Liabilities (Current and Non-Current) Payables 150, ,421 N/A Interest bearing liabilities 47,875 32,151 80, Total Financial Liabilities 47,875 32, , ,447 Net Financial Assets/(Liabilities) 144,255 (47,675) (31,951) (69,896) (5,267) 2001 Floating Fixed Interest Maturing in: Non- Total Weighted Interest 1 Year or Over 1 to Interest Average Rate Less 5 Years Bearing Effective Interest Rate $ 000 $ 000 $ 000 $ 000 $ 000 % Financial Assets (Current and Non-Current) Cash assets 186, , Receivables 99,051 99,051 N/A Other assets ,270 6, Total Financial Assets 186, , ,618 Financial Liabilities (Current and Non-Current) Payables 205, ,939 N/A Interest bearing liabilities 32,000 48,019 80, Total Financial Liabilities 32,000 48, , ,958 Net Financial Assets/(Liabilities) 186,697 (31,800) (47,619) (100,618) 6,660 50

53 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 (b) Credit Risk The credit risk on financial assets which have been recognised in the Statement of Financial Position is generally the carrying amount, net of Provision for Uncollectable Debts Governments Banks Other Total $ 000 $ 000 $ 000 $ 000 Financial Assets Cash 128,253 15, ,255 Receivables Other Assets 76,039 76,039 4,886 4,886 Total Financial Assets 128,253 15,947 80, , Governments Banks Other Total $ 000 $ 000 $ 000 $ 000 Financial Assets Cash 139,383 47, ,697 Receivables Other Assets 99,051 99,051 6,870 6,870 Total Financial Assets 139,383 47, , ,618 (c) Net Fair Value of Financial Assets and Liabilities The net fair value of cash and cash equivalent financial assets and financial liabilities of the Corporation approximates the carrying amounts. The net fair value of the other monetary financial assets and financial liabilities is based on market prices where a market exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles Carrying Net Fair Carrying Net Fair Amount Value Amount Value $ 000 $ 000 $ 000 $ 000 Financial Liabilities Short term borrowings 47,875 49,690 32,000 32,580 Long term borrowings 32,151 32,018 48,019 49,762 Total Financial Liabilities 80,026 81,708 80,019 82,342 Note 21. Events Occurring After Balance Date On 6 July 2002 the Director-General, Department of Transport, in his capacity as agent for RIC and SRA signed a contract valued at $ million for the civil and systems works on the Parramatta Rail Link project. In this regard, RIC has a total commitment under the contract of $ million. The RIC capital commitment is detailed below: $ 000 Payable not later than one year 116,465 Payable later than one year, not later than five years 700,214 Payable later than five years 5,998 Total RIC Capital Commitments for PRL 822,677 Contingent Asset The total commitments as per the above note include input tax credits of $ million that are expected to be recoverable from the Australian Taxation Office. 51

54 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 22. Joint Ventures Rail Infrastructure Corporation (RIC) was a party to five joint ventures operating during the 12 months ended 30 June The following results were based on management accounts as audited accounts were not available at the time of completion of the RIC Financial Report. (a) Transfield-RSA Electromechanical Services Joint Venture RIC has a 50% interest in Transfield-RSA Electromechanical Services Joint Venture which provides electrical and maintenance services. This Joint Venture was established as a partnership and commenced operations in August $ 000 $ 000 Equity Accounted Investment Equity accounted investment at beginning of financial period Share of operating profit (no income tax due as this is a partnership) Equity Accounted Amount at End of Financial Period (b) Track Australia Pty Limited RIC has a 50% interest in Track Australia Pty Limited, which is an operator of specialised track maintenance equipment. This Joint Venture commenced operations on 1 January $ 000 $ 000 Equity Accounted Investment Equity accounted investment at beginning of financial period Share of operating profit before income tax 6 (238) Share of income tax 81 Equity Accounted Amount at End of Financial Period (c) Leighton/RSA Joint Venture (Hong Kong) RSA entered into a joint venture with Leighton Contractors (Asia) Ltd in March The sale of this joint venture was finalised in March Equity Accounted Investment $ 000 $ 000 Equity accounted investment at beginning of financial period 156 Share of operating profit before income tax (no income tax as this is a partnership) 156 Disposal of joint venture interest (156) Equity Accounted Amount at End of Financial Period 156 (d) Thiess Contractors Pty Ltd/RSA Joint Venture RIC has a 50% interest in a joint venture with Thiess Contractors Pty Ltd which commenced trading in August That joint venture has service agreements with Thiess Infraco Bayside Ltd and Thiess Infraco Swanston Pty Ltd which, under contract, undertake the maintenance of Bayside Trains and Swanston Trams in Victoria. As at 30 June 2002 RIC had no investment in the joint venture. Both Thiess Infraco companies pay for services provided by the joint venture which are distributed to each joint venturer. Accordingly, all fees received or receivable for the 12 months ended 30 June 2002, which totalled $5,687,000 (2001: $1,950,052), are recorded as revenue in this Report. 52

55 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 (e) Rail Fleet Services Limited RIC has a 50% interest in a joint venture with Alstom Australia Ltd to operate a rolling stock maintenance business. This incorporated joint venture commenced operations in April $ 000 $ 000 Equity Accounted Investment Equity accounted investment at beginning of financial period (Total shares of $50) 655 Share of operating loss before income tax (a) (609) (1,880) New Capital Invested by conversion of debt to equity 1,500 Write back/(off) of part of the share of operating loss before income tax (b) (c) (891) 1,225 Equity Accounted Amount at End of Financial Period RIC s total investment in joint ventures is made up as follows: Transfield-RSA Electromechanical Services Joint Venture Track Australia Pty Limited Leighton/RSA Joint Venture (Hong Kong) Rail Fleet Services Limited Summarised Financial Position of RIC s Share of Joint Venture Entities: 156 1,188 1,258 Current assets 6,791 21,658 Current liabilities (3,817) (22,204) Non-current assets 3,649 6,722 Non-current liabilities (5,769) (6,143) Net assets Partial write off of accumulated losses of Rail Fleet Services Limited (b) (c) 334 1,225 Net Assets 1,188 1,258 Revenue 14,958 16,634 Less expenses Operating profit/(loss) before income tax (15,481) (18,542) (523) (1,908) Write back/(off) of Rail Fleet Services Limited losses as at close of financial period (b) (c) (1,225) 1,225 Partial write back of accumulated losses of Rail Fleet Services Limited (b) (c) 334 Subtotal write back/(off) of Rail Fleet Services Limited losses as at close of financial period (891) 1,225 Income tax 81 Operating Profit/(Loss) after Tax (1,414) (602) Accumulated losses at opening date of reporting period (1,167) (565) Accumulated losses disposal of joint venture interest (156) Accumulated losses at closing date of reporting period (2,737) (1,167) Share of reserves attributable to joint venture entities Nil Nil Contingent liabilities as per Note 17(b) is also relevant to this section. (a) Tax benefits relating to operating losses are not recognised as a tax asset as it is not certain that the tax asset will be recovered (b) Where the investor s share of deficits (losses) and reserve decrements reduces the carrying amount of the investment below zero, application of the equity method must be discontinued and the investment recorded at zero (AAS 14 (5.13)). (c) When an investor resumes application of the equity method after having discontinued its use, the investor must not recognise its share of the results (profits) and reserve increments of the associate until such share offsets its share of deficits (losses) and reserve decrements not recognised during the reporting periods in which the equity method was not applied (AAS 14 (5.14)). Note 23. Significant Items The following transaction is considered significant due to its nature: June June Note $ 000 $ 000 Increase/(Decrease) in superannuation reserve over superannuation liability 19 (32,462) 15,746 (32,462) 15,746 53

56 NOTES TO AND FORMING PART OF THE FINANCIAL REPORT for the year ended 30 June 2002 Note 24. Directors Remuneration There were seven non-executive directors of RIC throughout the 12 months ended 30 June 2002 with total remuneration paid of $427,852 ($166,528 for the six months ended 30 June 2001). Note 25. Controlled Entity On 11 February 2000, Rail Services Australia incorporated a subsidiary in Hong Kong known as Rail Services Australia (Hong Kong) Ltd. The Board of RIC resolved on 29 May 2002 to approve the placement of that company into members voluntary liquidation subject to voting shareholder approval. As at 30 June 2002 that company had ceased operations. Note 26. Investment in Associated Company On 22 June 2000, Rail Access Corporation became a joint shareholder in the Parramatta Rail Link Company Pty Limited with an allotment of 10 shares of 30 shares issued at $1 per share. As a result of the establishment of Rail Infrastructure Corporation the shares have been transferred to that Corporation. The Parramatta Rail Link Company Pty Limited acts as agent for the State Rail Authority, Department of Transport and Rail Infrastructure Corporation to deliver the Parramatta/Chatswood Rail Link. Note 27. Segment Reporting Segment information is prepared in conformity with the revised segment reporting accounting standard AASB 1005 Segment Reporting. Segment information is reported on the basis of business segments. Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment. Business Segment Primary Segment 2002 Access to Others Intersegment Consolidated Infrastructure Eliminations $ 000 $ 000 $ 000 $ 000 Sales to External Clients Access fees 561, ,330 CSO 246, ,625 DOT and Operator Funded Capital 158,159 2, ,306 Maintenance and construction services 86,416 86,416 Electricity 29,262 29,262 Other 19,587 31,028 50,615 Telecommunications 21,076 21,076 Intersegment sales 25,673 (25,673) Total Sales Revenue 1,014, ,340 (25,673) 1,155,630 Share of net profits of Associates (1,414) (1,414) Total Segment Revenue 1,014, ,926 (25,673) 1,154,216 Total Segment Results 12,645 (33,059) (20,414) Segment Assets 751, , ,938 Unallocated Assets 145,904 Total Assets 1,095,842 Segment Liabilities 349,460 76, ,201 Unallocated Liabilities 17,326 Total Liabilities 443,527 Investments in Associates and Joint Venture Partnerships 1,188 1,188 Acquisitions of property, plant and equipment, and other non-current segment assets 237,398 68, ,629 Depreciation and diminution expense 196,202 32, ,564 54

57 RAIL INFRASTRUCTURE CORPORATION Annual Report 2002 Note 27. Segment Reporting (continued) 2001 No comparatives are available. Geographical Segment Secondary Segment Rail Infrastructure Corporation operates primarily in one geographical area, New South Wales. Note 28. Reporting Exemptions The following reporting exemptions have been granted to RIC: Description of Exemption Preparation of manufacturing, profit and loss account Act/Regulation Reference Section 41B(c) Public Finance and Audit Act 1983 (PFA) Amounts set aside for renewal or replacement of fixed assets Item 2, Sch I Public Finance and Audit Regulation 2000 (PF&A Reg 2000) Amounts set aside to any provision for known commitments Item 4, Sch I, Part I PF&A Reg 2000 Amount appropriated for repayment of loans/advances/debentures/deposits Item 6, Sch I, Part I PF&A Reg 2000 Excess of non-current asset value over replacement cost Item 13, Sch I, Part 3 PF&A Reg 2000 END OF AUDITED FINANCIAL REPORT. STATEMENT BY DIRECTORS for the year ended 30 June 2002 Pursuant to section 41(C)(1B) of the Public Finance and Audit Act 1983 and in accordance with a resolution of the members of the Board of Rail Infrastructure Corporation and its subsidiary that in our opinion: The accompanying Financial Report, read in conjunction with the notes thereto, exhibits a true and fair view of the financial position of Rail Infrastructure Corporation and its subsidiary as at 30 June 2002 and transactions for the 12 months ended 30 June 2002, and The accompanying Financial Report has been prepared in accordance with the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2000 and other mandatory professional reporting requirements. Further, we are not aware, as at the date of this statement, of any circumstances which would render any particulars included in the Financial Report to be misleading or inaccurate. This statement is made in accordance with a resolution of the Directors. Rod Sims Chairman Barbara Ward Director 17 October October

58 INDEPENDENT REPORT 56