New Railtrack will be a 'good risk'

Mr Byers said he would welcome approaches about a Railtrack purchase

Transport Secretary Stephen Byers has said the company he is proposing as a replacement for Railtrack would be viewed by lenders as a "good risk".

Mr Byers' proposal

New not-for-profit company to run rail network

No shareholders - profits invested in network

Income from train operators and government grants

Big projects handed over to private consortiums

The new not-for-profit company would face challenges in its early years, Mr Byers told the House of Commons in a written statement.

But he assured potential investors that it would have access to emergency loan facilities in the event of a financial crisis.

Although, Mr Byers stressed, this did not amount to a guarantee of a government bailout.

Still open to offers

Mr Byers stressed that the new company was only a proposal at this stage and the government was still keen to encourage bids from private companies to run Britain's rail network.

Infact, the administrator Ernst & Young is legally obliged to consider any third party bids and has already held talks with WestLB, the German state owned bank.

Nevertheless, Mr Byers said he was "confident" that the government's not-for-profit option would:

• End the conflict between short term increases in share price and the long-term needs of the network
• Give rail operators and passengers more of an input into the network
• Help attract the £34bn in private investment needed to underwrite the government's 10-year-transport plan
• End the divisions "all too apparent in the industry when the network was under Railtrack's stewardship".

Unlike Railtrack, the proposed new company would plough profits back into the network rather than shareholder dividends.

But it would still rely on private investment to help it fund badly-needed track improvements and it would be allowed to raise cash on the debt markets.

Financial 'cushion'

Mr Byers said that under the proposals being drawn up by the government, the new company would have at least a "triple B" credit rating, two notches above "junk" status.

We anticipate that in practice lenders would view the company as a very low credit risk and a sound basis for their investment

Stephen Byers

Mr Byers described this as a "solid investment grade" rating.

"We anticipate that in practice lenders would view the company as a very low credit risk and a sound basis for their investment," he said.

Although the new company would not be distributing profits to shareholders, it would still aim to build up a cash surplus over time, he said.

This surplus, in addition to the stand-by loan facility, the size of which would be capped by government, would act as a "cushion" in the event of financial problems, Mr Byers said.

Scaled-down role

Mr Byers also confirmed that the proposed new company would play a scaled-down role in the future development of the rail network, largely confining itself to routine track maintenance.

Big one-off projects, such as an upgrade for the East Coast Mainline would be carried out by specially-created consortiums.

Mr Byers said the new company could also "be combined with a different, more streamlined, regulatory regime than the one under which the industry has had to labour to date and this would help to underpin its credit rating."

Mr Byers is shortly expected to announce Virgin Rail's Richard Bowker as a replacement for Sir Alistair Morton as the head of the Strategic Rail Strategy.

Opposition anger

Conservative shadow transport secretary Theresa May faced Mr Byers for the first time at the despatch box and maintained pressure on him to stand down over his handling of the Railtrack affair.

The real story is that rail improvements will be delayed and the cost of funding investment will go up

Theresa May, Shadow Transport Secretary

She accused Mr Byers of getting his sums wrong over Railtrack, saying the cost of setting up a replacement for the stricken company would be more than the cost of keeping it afloat.

Ms May said: "The real story is that rail improvements will be delayed and the cost of funding investment will go up."

Marshall 'disappointed'

Railtrack chief executive Steve Marshall said: "I am extremely disappointed with the statement made by the Secretary of State today (Tuesday).

He (Mr Byers) did not shed any further light on the government's attitude towards shareholders

Steve Marshall, Railtrack chief executive

"It did not answer any of the questions raised in my letter to him (sent earlier on Tuesday)."

Mr Marshall went on: "There was no reassurance for our employees, nor did it do anything to assure the public that progress on the railway will not be put back by two years.

"He (Mr Byers) did not shed any further light on the Government's attitude towards shareholders.

"In particular we are looking for clarification on the possibility raised in the press at the weekend that interest bearing bonds were available to shareholders."

'Lost opportunity'

The Rail Maritime and Transport union said Mr Byers' proposals could represent a "lost opportunity".

We are disappointed that Mr Byers has opted for a private company run on purely commercial lines rather than a total return to public ownership

Vernon Hince, Rail Maritime and Transport union

Acting general secretary Vernon Hince said: "We welcome the commitment to ploughing profits back into the industry rather than into shareholders' pockets.

"But we are disappointed that Mr Byers has opted for a private company run on purely commercial lines rather than a total return to public ownership."

In a separate development, influential credit rating agency Standard & Poor's said on Tuesday that the Railtrack affair would be unlikely to undermine the status of Private Finance Initiative (PFI) projects, which the government is relying on to pay for new hospitals and schools.