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EDITIONS
Wednesday, 2 October, 2002, 14:14 GMT 15:14 UK
Q&A: What now for Britain's railways?

After almost a year in administration, Railtrack Group's core operation, Railtrack Plc, is being sold to the new not-for-profit company Network Rail.

BBC News Online looks at the events of the last year and what happens now to the UK's rail network.

Take me back - why was Railtrack put into administration in the first place?

Former transport secretary Stephen Byers decided to put Railtrack into administration in October 2001, after a series of events left the company in financial crisis.

A key catalyst was the Hatfield rail crash in October 2000, which was found to be the result of a broken rail.

This exposed a series of errors and the weak state of the rail network in the UK and led to numerous speed restrictions.

But these resulted in enormous compensation claims by the train operators, and Railtrack went from being a profitable company, to reporting losses of 534m.

Hatfield alone may not have seen Railtrack off.

But at the same time, the company had been spending vast sums of money refurbishing the West Coast Main Line.

Mr Byers said company had told him in July that it was facing financial disaster.

He said that by December 2001, losses would have been 700m, rising to 1.7bn by March 2002.

If the company was put into administration, how come I can still buy shares in the company?

Railtrack shares were suspended at 280p in October 2001, at the same time as the company was put into administration.

In June 2002, Railtrack agreed to hand over control of its core operations to Network Rail, for 500m.

Following the agreement, shares in the company resumed trading.

Who or what is Network Rail?

Network Rail is a new government-backed not-for-profit company controlled by train operators, rail unions and passenger groups.

It will take over the responsibility for the 23,000 miles of rail track and 2,500 railway stations in the UK previously run by Railtrack Plc, the core operation of Railtrack Group.

John Armitt, former head of the engineering group Costain, will be the chief executive of the company having occupied the same role for Railtrack when it was put into administration.

Network Rail has promised it will be "dedicated to the interests of rail users" and, unlike Railtrack, any profits will be ploughed back into the business rather than being split between shareholders as dividends.

It will also take on Railtrack's 7bn debts.

Isn't the government effectively buying back the railways

Network Rail is paying 500m to take over Railtrack's assets, and of this 300m will come directly from the government.

The remaining funds will come from commercial lenders.

The government has argued that this is more cost effective than keeping Railtrack in administration, which was costing around 1m a day.

What happens to Railtrack shareholders when Network Rail takes over?

When Railtrack was put into administration, the government indicated that shareholders would receive about 70p per share in compensation.

After much lobbying by action groups, it now says shareholders are in line for 252-260p per share.

This is almost 90% of the price at which the shares were suspended, but still a far cry from their peak of about 17 per share in 1998.

Surely shareholders know the risks associated with investing. Why are they getting anything at all?

Action groups argued that when companies are on the verge of collapse, there is usually some warning and a reflection in its share value.

But in the case of Railtrack, very little indication of the troubles was given.

And what becomes of Railtrack Group?

Railtrack Group, the parent company, is busy selling off its remaining assets, including a substantial property portfolio, before heading for voluntary liquidation.

It has already agreed the sale of its sale in the Channel Tunnel Rail Link to London and Continental Railways for 295m.

Network Rail has secured a subsequent deal to pay 80m for the operating rights to St Pancras and the Channel Tunnel.

There will be an extraordinary general meeting of Railtrack on 18 October, where it is expected that voluntary liquidation will be approved.

The shares will remain listed on the stock market until December, and the first instalment of cash to shareholders will be paid in January 2003.


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