Rail rescue: what it means

Railtrack investors have cautiously welcomed the plan

Stephen Byers has announced a £500m rescue package for Railtrack, which includes a payment to shareholders. BBC Transport Correspondent Tom Symonds explains the proposals.

The rail industry has had a bumpy ride since it was privatised - and yet again it is facing a big upheaval.

Within months, control of the system could be handed over to an entirely new company - Network Rail.

Network Rail would be owned and run by 40 different companies within the rail industry, along with passengers groups, trade unions and local transport executives.

But the big difference to Railtrack is that the new company won't hand its profits to shareholders - instead they'll be ploughed back into the railways.

Legal battle

There's no guarantee Network Rail will take over - the Railtrack administrators have a duty to consider every bid.

But NR is trying to take a shortcut - and that's where the controversial payment to shareholders comes in.

Under Monday's proposals, NR would pay £300m of taxpayers' money and £200m from its banks to the Railtrack Group.

But the deal would be dependent on the shareholders voting to accept an early transfer of the company, without considering any other bids.

The government is putting public money into the plan, perhaps to ease its Railtrack headache as quickly as possible.

Network Rail says the proposal would pay for itself.

Stephen Byers: U-turn?

By taking over Railtrack early, the company believes it could bring improvements to train services, and reduce the penalties that are paid for poor performance.

Ending the administration process itself would also save money.

Conveniently for the government, it is also likely the deal would see off a brewing legal confrontation with Railtrack - which is planning to accuse Stephen Byers in court of breaching his powers of office.

For all these reasons, the transport secretary appears to have decided its worth doing an apparent U-turn and again stoking up the ridicule of his opponents.

Network Rail wants Railtrack to sign up to the idea in principle within weeks.

Passenger confidence

It would take another six weeks to sign the contracts.

Then there would be an Extraordinary General Meeting of the company, where shareholders would vote.

Today investors gave a cautious welcome to the offer.

Financial institutions said it was probably the most compensation they would get, though smaller shareholders will take some convincing.

Some shareholders have a stake in the company worth £10 or £12 a share.

Will passengers benefit?

When Railtrack collapsed, shares were worth £2.80 each.

Today's deal would return £2.50 a share to them.

Another aspect of this deal is the degree to which the government is supporting a huge level of borrowing by Network Rail.

If it goes ahead, the company will raise £9bn from its banks to cover the next few years.

NR insists there is no government guarantee that the public purse will pay that money off, should the industry enter another crisis like the one following the Hatfield crash.

Halt

But there is an offer of a standby loan from the Strategic Rail Authority which amounts to much the same thing.

In the end, ministers can't afford any suggestion that the rail network could grind to a halt.

Once all this is resolved, whoever takes over Railtrack can begin restoring passengers faith in train travel.

Network Rail, a company backed by the industry itself, believes it is best placed to do the job.