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Subsidy U-turn triggers Railtrack collapse


TRANSPORT SECRETARY Stephen Byers forced Railtrack into administration on Sunday after terminating an agreement to accelerate £1.5bn of government subsidies.

The funds were originally due to be paid to Railtrack via the Strategic Rail Authority (SRA) after 2006 but were brought forward under the settlement agreed by Rail Regulator Tom Winsor in April (NCE 5 April).

Byers paid the first £336M tranche this month, but told Railtrack chairman John Robinson last Friday that he was not releasing any more.

Byers also made it impossible for Railtrack to complete an agreement with the SRA under which it would bring forward money it was due to release towards the end of the period to 2006.

'This would have given Railtrack immediate access to £445M and an equivalent amount over the remainder of the financial year, ' said finance director David Harding on Tuesday afternoon.

'The SRA had agreed to use its 'best endeavours' to implement the structure and it was an essential part of our funding.'

But the agreement was subject to a review by the Rail Regulator 'hardly possible at 5pm on Friday faced with a court hearing on Sunday, ' said Harding.

In a meeting with Byers on Friday, Robinson said that these factors made Railtrack's position untenable. Byers is understood to have agreed, setting in motion the application to put Railtrack into administration. 'It was presented as a fait accompli, ' said a Railtrack spokesman.

On Sunday Byers' refusal to give Railtrack access to more finance led to an application for an emergency High Court ruling for Railtrack to be put into Railway Administration under the 1993 Railways Act .

Control of the rail operator and the rail network is now in the hands of accountant Ernst & Young. It will keep Railtrack running, collect subsidies and track access charges and pay contractors until Railtrack is handed over to a new owner.

An Ernst & Young spokesman said that the government had also agreed to release unspecified amounts of subsidy to finance Railtrack while in administration.

A statement from the Department of Transport, Local Government & the Regions (DTLR) said that the government favoured putting the rail network under the control of a company limited by guarantee (CLG).

The exact structure of the new company is unlikely to be clear for several months but the CLG indicated that the guarantee would be set a performance regime. Under this the company's board would be responsible for the rail network's performance and for making the company profitable.

One banking source close to the rail sector said several key issues had to be resolved before the new company could be set up.

These included repaying Railtrack's £3.5bn debt. DTLR said Railtrack's debts will transfer to the CLG. This means officials will have to work out how to pay these off if the CLG is to be solvent.

The government favoured the new structure because it removed Railtrack's focus on creating shareholder value through profit growth.

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