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Rail contractors' profitability in doubt

CONTINUED UNCERTAINTY over Railtrack's investment and maintenance plans will undermine the profitability of rail contractors, a City stockbroker warned in a new report this week.

The report, from broker Granville Baird, also warns that profits will suffer as contractors try to recruit in the face of a mounting skill shortage.

It points out that the same contractors were under pressure to cut their workforces after rail privatisation, when rail traffic and demand for rail maintenance were expected to fall.

Granville Baird also says that the Strategic Rail Authority's (SRA) decision to take control of Railtrack's capital programme has again raised doubts about the level of future rail investment.

It highlights uncertainties in the amount of private sector cash the SRA will be able to lever into projects under its new design build finance transfer (DBFT) plan unveiled last month (NCE 22 March).

And these new DBFT contracts, it adds, could actually be more risky than the conventional privately financed design build finance operate contracts used elsewhere in public procurement.

Such rail projects are likely to incorporate the development and installation of complex signalling equipment and the broker points out that the last time risks of this magnitude were borne by the private sector was on the Channel Tunnel.

Costs on this project spiralled partly because trains had to be redesigned to accommodate the technology. Similarly, the report points out, several privately financed government IT projects have suffered cost overruns related to technological problems.

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