Taxpayers' money to bail out Railtrack

A total of £300 million of taxpayers' money is going into a bid to buy-out collapsed rail infrastructure company Railtrack, it was announced today.

But Transport Secretary Stephen Byers stressed payment of the cash bail out would only be made if Railtrack came out of administration early.

The £300 million, together with £200 million to be borrowed from the City, is part of a financial proposal to take over Railtrack outlined today by Network Rail, the newly-named not-for-profit company limited by guarantee (CLG) bidding for Railtrack.

Added to assets within in the Railtrack Group, the £500 million will enable Railtrack's shareholders to get around £2.50 per share.

Shares, which were at one time as high as £17, were suspended at £2.80 when Mr Byers took steps to place Railtrack in administration last October.

Mr Byers has repeatedly said since then that no taxpayers' money would go to help Railtrack shareholders.

Today, he said the £300 million grant reflected "the value and benefits of an early exit from administration" and was "self-financing from savings that will be made by the CLG".

But while the Rail Passengers Council welcomed the fact that Railtrack could now be out of administration as early as July, shadow transport secretary Theresa May accused Mr Byers of a "humiliating U-turn" and urged him to consider a rival bid.

Railtrack has about 250,000 shareholders who own a total of around 520 million shares.

The Network Rail proposal today would provide about 1p a share, while the group's assets - which includes its share of the Channel Tunnel high-speed rail link - would be worth around another £1.50 a share.

Railtrack Group, which unlike Railtrack Plc is NOT in administration, said: "We welcome today's approach by Network Rail and will be studying it carefully. It will be up to the shareholders to have the final say."

The proposal by Network Rail has come ahead of planned legal action against Mr Byers over Railtrack shares and fears that the company could have been in administration until at least November.

The £300 million Government grant, together with the £200 million bank loan, represent an "early exit" payment.

Network Rail chairman Ian McAllister said that trying to reach a July target for ending the administration period would be "quite challenging". Network Rail added that Brussels would have to approve the Government grant.

The newly-named company will borrow up to £9 billion, with the Strategic Rail Authority providing standby loans.

This would enable Network Rail to raise enough funds to acquire Railtrack Plc and to refinance its existing debt of around £6.5 billion.

Mr McAllister promised that the "robust and comprehensive" deal would end conflict in the rail industry and improve safety.

He said: "It is time for a fresh start for the rail industry. Network Rail's proposal marks a watershed for Britain's railway.

"It is an opportunity to endorse a better way of working, bringing the industry together for the benefit of all rail users.

"We will end the confrontation that has all too often characterised this fragmented industry and establish new management structures and incentives to deliver system-wide performance and safety improvements.

"We will build on the pride and passion in Railtrack's people, elevating engineering excellence to where it belongs, at the heart of the rail network.

"We are committed to continually improving safety standards on Britain's railways."

Mr McAllister said an "immense amount of preparation work" had gone into the proposal and the new company had undertaken extensive consultation with the industry.

He added: "I believe that this approach is the best way to ensure that Railtrack plc does not remain in administration for a great many months to come.

"The 'early exit' payment is the only realistic option for Railtrack Group Plc to realise value in the short-term.

"Network Rail was created to solve the accumulated problems of Britain's rail infrastructure.

"This cannot happen overnight, but Network Rail will deliver investment funded at a very low cost of capital and avoid any suggestion of putting profit before safety.

"Network Rail has the structure and the vision to deliver a rail network which meets the expectations of the travelling public."

Mr Byers said: "I welcome the bid for Railtrack tabled today by Network Rail A company limited by guarantee will be able to put the interests of the travelling public first.

"There will be no shareholders, so any operating surplus will be used for the benefit of the railway system."

Mr Byers added: "Network Rail is committed to engineering excellence. Their bid has the potential to bring the rail industry together and overcome the confrontation that has all too often characterised it in the past.

"The Government has always said that Railtrack shareholders should get the value in the company to which they are entitled, but that there would be no additional taxpayers' money to compensate the shareholders.

"Network Rail's bid is consistent with this approach. It includes, as part of its offer, a Government grant of £300 million to reflect the value and benefits of an early exit from administration.

"For the Government, it will be self-financing from savings that will be made by the company limited by guarantee.

"It therefore follows that if there is not an early exit, then the savings will not be made. In such circumstances the £300 million will not be made available."

Ms May said: "It is clear the Government has been panicked into doing this because they are worried about the threat of being taken to court and having to reveal the truth of their decision on Railtrack, which was a political decision and not a financial one," she told the Today programme.

"And, of course, they are worried about the damage that Stephen Byers has done to the relationship between the Government and the private sector."

She went on: "But the real question for Stephen Byers this morning is that it is now clear there is an offer on the table which would compensate the shareholders, put the company on an even keel, bring it out of administration early and not use taxpayers money.

"Why is he not looking at the offer? Why has he been panicked?"

Anthony Smith, national director of the Rail Passengers Council, said the bid was "good news for passengers because it ends the long term uncertainty about Railtrack's position".

He added: "The fact that the Government money is not coming from railway investment is encouraging and overall it will help Railtrack to quickly be re-established at the centre of the railway industry, but in a shape that can deliver what passengers want and with better accountability."