Network Rail's widely-criticised corporate governance is under renewed scrutiny.

A review into the company's structure has just been launched by the Office of Rail Regulation which will gather evidence on whether the public members appointed by the company are proving effective in holding the board to account. It will also determine whether the corporate governance conditions in the companyÕs licence need to be strengthened.

The review will be welcomed by train operators whose attempts to sanction the company for poor performance have failed in the face of what they regard as uncritical and unquestioning support for Network Rail from the large appointed membership.

As part of the review, the ORR will interview operators and appointed members on how they believe the current arrangements are working, and examine the effectiveness of corporate governance arrangements in other industry sectors - particularly where there are businesses which, like Network Rail, do not have equity shareholders.

"We are looking at whether there are things that can be transported into Network Rail to help enhance its governance processes and accountabilities," ORR director John Thomas said. "We are talking to a number of public members and operators to get their views about how they feel it works and how they see their role. We will then see if there are any lessons Network Rail ought to learn either for inclusion as part of the licence condition or if there are wider issues we feel this study raises to discuss with Network Rail."

In advance of the review, the ORR has already concluded that the company should make it much clearer why bonuses are being awarded to directors and require them to be awarded against broader criteria than at present.

The review of Network Rail's corporate governance was announced as the regulator again rejected the companyÕs requests for additional funding.

In its draft decision on Network Rail's five-year funding settlement, the ORR confirmed that its studies show the company is operating significantly less efficiently than other European railways and concluded that Network Rail should be awarded £26.5bn between 2009-14 compared to the £29.1bn it had demanded.

Whereas Network Rail had offered to improve its efficiency in maintaining operating and renewing the network by 13% over the five years, the ORR demanded a 21% improvement. Deputy director Paul McMahon said the ORR had held back from requiring the full 30% improvement which its research suggests is necessary to bring Network Rail in line with European standards because of the company's huge workload over the next five years. However, Network Rail would be required to catch up the remaining 10% in the 2014-19 funding settlement.

The ORR's position received an angry reception from Network Rail chief executive Iain Coucher who said significantly more funding would be needed to deliver the increase in services, infrastructure enhancements and improved punctuality set out in the governmentÕs blueprint for the railways.

"On the face of it, the proposed funding settlement is insufficient. I am extremely concerned that it will put our plans to meet rising demand at risk," Coucher said. ÒIn the coming months, Network Rail will use everything in its power to secure the funding necessary to build a bigger and better railway."

However, ORR director Thomas responded that Network Rail's position was indicative of the company's concern over the huge task it faces in renewing and upgrading the network rather than the viability of doing so more efficiently. "We would say look at the evidence," Thomas said. "My view is Network Rail are hacked off, but it's more about the size of the challenge they face than the efficiency gap. The evidence suggests there is a long way for them to go."

Other recommendations and reforms announced with the ORRÕs draft decision on funding included a requirement for Network Rail to meet punctuality targets for each operator as well as a network-wide target; suggestions of best practice technologies and management process Network Rail should consider adopting from Europe; and new incentives for operators and Network Rail to work more closely. Under the new proposals, operators working with Network Rail on projects to deliver higher efficiency levels than ORR has called for would be given a cut of the savings.