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Monday, 25 March, 2002, 12:19 GMT
Q&A: Network Rail bids for Railtrack

Six months after Railtrack plc was put into administration, and as train services continue to worsen, a buyer has emerged for the UK's beleaguered track and signal operator.

BBC News Online investigates what the bid could mean for Britain's long-suffering passengers.

So what, in a nutshell, has been announced?

A company called Network Rail has said it wants to buy Railtrack plc, the business which looks after tracks, signals and other UK railway infrastructure.

Network Rail? Never heard of it.

Not surprised. Until Monday, Network Rail had been known as CLG, itself a somewhat low-profile brand. (The initials stand for Company Limited by Guarantee).

CLG was set up by Transport Secretary Stephen Byers last autumn to propose ways of running UK railways within a privatised format, but embracing some elements of a nationalised railway.

Crucially, the firm would run the railways on a not-for-profit basis.

Any surplus cash earned would be spent on upgrading track, rather than paid, through dividends, to shareholders.

For Railtrack, arguments over whether cash should be directed at investors or investment undermined the firm's credibility, and contributed to its collapse.

Indeed, I thought Railtrack plc was a financial disaster zone. Why would anyone want to buy it?

Mr Byers may have last autumn forced Railtrack into administration, but the firm still owns the UK rail network.

And it will continue to do so until the end of the administration process, which looks likely to drag on for months, and which has effectively left in limbo long-term plans for improving tracks.

So a government which has nailed its credibility to improving railways has been left powerless to pursue the cause.

Indeed, it is stuck with the blame for ever-worsening services.

Hence Network Rail's plans to end the deadlock have received not only the government's verbal support, but 300m of taxpayers' money too.

Errr, but I thought Mr Byers had pledged not to spend taxpayers' money compensating Railtrack shareholders for the firm's collapse?

He did.

But the payment is being proposed not as compensation, but as an incentive for prising the rail system rapidly out of administrators' hands.

Railtrack investors must be delighted.

The plan has received a cautious welcome from shareholders in Railtrack Group, the firm which owns Railtrack plc plus other property holdings and the forthcoming Channel Tunnel Rail Link.

The government-backed purchase plan offers investors the equivalent of 1 per share.

The rump of Railtrack Group is worth an estimated 1.50 per share.

So, backed by Monday's cash injection proposal, Railtrack shares are worth roughly 2.50 each.

While that sum beats the expectations of many observers, investors had originally fought for sufficient compensation to see shares worth 3.60 each.

Does it matter any more what shareholders think?


While Railtrack's board will issue a recommendation on whether to accept the Network Rail offer, it is shareholders who will have the final say.

And if they back Network Rail?

In the words of its chairman Ian McAllister, Network Rail "was created to solve the accumulated problems of Britain's rail infrastructure".

Ian McAllister, chairman, Network Rail
Ian McAllister: Big plans

To this end, the firm said it had drawn up a "robust business plan built on a clear vision".

Not that the business plan has actually been finalised.

"Network Rail has not yet had the benefit of discussion with the management of Railtrack plc," a statement on Monday said.

We are, however, promised a company committed to delivering long-term rail investment, and to ridding the industry of the damaging tension which has built up between train operators and track engineers.

"Appropriate management incentives will be introduced to foster co-operative working arrangements."

We are also promised "improved" train punctuality, achieved through higher levels of spending on track maintenance.

Major projects will increasingly be undertaken by outside consortia, which will be contracted to deliver work to a pre-agreed price.

This arrangement will limit Network Rail's exposure to the kind of spiralling construction costs that dogged Railtrack.

Indeed, Railtrack plc's debts are estimated to have reached 6.6bn.

And the UK rail network could be back out of administrators' hands by the end of July.

See also:

25 Mar 02 | Business
Byers backs Railtrack buy-out
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