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Funding doubts cloud launch of Railtrack successor

CITY SOURCES this week expressed strong doubts about claims that the governmentbacked successor to Railtrack would have enough money to improve the network.

They said that it would need more than the £9bn in borrowings the company plans to raise to get control of the rail network.

On Monday Network Rail was formally launched as the not for profit company which the government wants to take Railtrack out of administration.

Network Rail, headed by former Ford chairman Ian McAllister, plans to take Railtrack out of administration using bridging loans from banks to pay off £6.5bn of Railtrack's debt and fund ongoing maintenance and renewal work.

Network Rail hopes to take Railtrack out of administration as early as June. Standby loans from the Strategic Rail Authority (SRA) will back up the bridging loans.

Network Rail's £500M offer to Railtrack Group sets the condition that a preliminary deal is agreed within three weeks.

This equates to £1 a share, which will be topped up to £2.50 from the £350M held by the Group plus proceeds from the sale of the concession to operate section two of the Channel Tunnel Rail Link.

But bankers cited uncertainties over the final cost of the West Coast Main Line as one factor that could push up the funding needed. The original cost of £2.1bn is now estimated at over £7bn.

One City analyst said that the £9bn would 'simply not be enough' to fund the new company. He said that previous estimates had put Railtrack debts at around £8bn rather than the £6.5bn estimated by Network Rail.

Network Rail managing director Iain Coucher said the company had 'made assumptions' on the West Coast costs. But he said figures could not be finalised until it had spoken to Railtrack.

The new company will concentrate on the operation, maintenance and renewal of the network, leaving major new schemes to so called special purpose vehicle consortiums to be organised by the SRA.

Network Rail's takeover proposals and bids from other groups will have to be approved and recommended by Railtrack administrator Ernst & Young to transport secretary Stephen Byers. He will then choose Railtrack's buyer.

One city analyst estimated it would take at least three years just to unravel Railtrack's finances which had been complicated further since it was put into administration.

INFOPLUS Go to the rail microsite at www.

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