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Getting back on track

Comment

It is becoming increasingly obvious that the government has lost control of the agenda for our railways.

Transport secretary Stephen Byers may well have been right to put Railtrack into administration earlier this month - indeed 80% of NCE readers agreed with him. But what he has failed to do is think through the consequences for the national rail network.

As the full impact of his decision sinks in, it is clear that the government has very little idea about who or what should now be put in charge of the rail network.

Byers has a very sketchy plan to replace Railtrack with a not for profit company limited by guarantee. Very little has been made public about this and from the speculation so far it seems that at best some civil servants have run a cursory glance over Welsh Water's not for profit owner Glas Cwymryu and decided that it could be the blueprint for the track owner. But while Glas Cwymru was able to take over Welsh Water's debts and finance itself through borrowing without support from the government, it is far from certain that Railtrack's successor will be able to do the same.

However, the thinking behind establishing such a company for the railways has a kind of logic.

The last thing chancellor Gordon Brown wants is for the government to have to underwrite Railtrack's £3.3bn debt mountain, as doing so will effectively count as public spending. Even without the prospect of a recession and a long running and expensive war on global terrorism, such a idea would be anathema to the Treasury.

The problem is, nobody will support the idea of a not for profit rail operator unless debts taken over from Railtrack are backed by the government in some way.

Railtrack's lenders are likely to try to stop the transfer of their loans to the new company unless the government makes it worth their while. In particular, lenders will want strong reassurances that their money will be safe with the new company, given the government's unexpected and precipitous decision to pull the plug on Railtrack.

Failing that they are likely to use the law to block the move and force the network operator's administrators to repay them.

The alternative is to sell Railtrack to someone like German bank West LB which is believed to be mounting a bid.

But this is also likely to cost the government money and, in contrast to the past, the new owner will ask for more cash and a more relaxed regulatory regime. And although Byers supports a relaxed regime he was forced to pull details from his speech last week because the train operators do not.

So it seems that one way or the another, the taxpayer will have to bail out the network. If this mess is to be resolved Byers and Brown must now bite the bullet and urgently sort out a form of funding guarantee that will satisfy any new track operator .

Andrew Bolton is NCE's news editor

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