It ended up in pieces. Now it's time to put Britain's rail system back together again

This week, the network's new owner should get the green light. But there could be problems waiting down the line

This Tuesday, at around 2pm in a conference room at London's Alexandra Palace, the fate of Britain's railways will be sealed.

Railtrack shareholders, whose investments were wiped out when Stephen Byers, the former Secretary of State for Transport, plunged the company into administration, will pass judgement on the Government's thinly disguised renationalisation of the track.

They will be asked whether they wish to accept the £500m offer for their shares from the government-backed company Network Rail. Few people believe that it will be rejected.

Shareholders have endured nine months of rows, uncertainty and, some say, lies. Most investors want to take their 250p-a-share and run. But there is a much bigger issue at stake.

If they accept then they are voting "yes" to the Government's new vision of how the railways should operate. The problem is that few people outside a coterie of government officials and railway executives fully understand this idea.

Apart from the very basic structure, Network Rail's plans are confidential. This weekend, its chairman, Ian McAllister, and managing director, Iain Coucher, were not prepared to elaborate. Similarly, the Railtrack boss John Armitt, who The Independent on Sunday has learnt will be named as Network Rail chief executive next month, was tight lipped.

What is not in doubt are the significant challenges facing Network Rail. Industry experts have identified five points – the five Ms – that Network Rail will have to tackle.

Maintenance was at the heart of Railtrack's problems. Four major rail crashes exposed the weakness of the arm's-length relationship that existed between the company and its contractors. There is little argument that the current maintenance system needs overhauling. But how?

Already, there seems to be disagreement between Railtrack and Network Rail. As contracts come up for renewal, Railtrack is asking the likes of Balfour Beatty and Jarvis to sign up to a new way of working, placing responsibility for safety on the lines back with Railtrack. The company hopes to have all the contracts signed within two years.

Network Rail, on the other hand, has spent time consulting with the contractors, many of which are unhappy with Railtrack's new proposals. It is understood that Network Rail plans to use specially created companies to carry out large renewal projects, while also developing a new incentive programme for contractors.

Says a senior source at a contracting firm: "The number one task for Network Rail is to decide which system to use."

The issue of how to improve maintenance has been complicated by the problem that Railtrack doesn't really know what it owns. There is no register of its assets, never mind a sophisticated system to log what's happening to any bit of the infrastructure at any one time.

David Tydeman, head of transport consulting at Cap Gemini Ernst & Young, believes Network Rail needs some serious megabytes, in the form of a comprehensive IT system. "Network Rail needs to know when a rail was last inspected, its condition and when it next needs inspecting, through one system," he says. "It needs to show network availability – matching train time sold on the lines against engineering time. And it needs to join up the supply chain.

"Railtrack couldn't do this because it had a responsibility to shareholders. Because Network Rail won't have shareholders, it has the opportunity to address this."

To build such an IT system would cost between 2.5 and 5 per cent of turnover, says Mr Tydeman. Based on Railtrack's annual turnover before it went into administration, this would be around £100m.

Exactly how this sort of capital would be raised is unclear. Railtrack's last straw was money. It needed another massive state handout to keep going, in the form of an interim review of its finances. The Government said no.

Network Rail has raised £9bn in loans, which will be used to pay Railtrack's debts and trade creditors, and to provide short-term working capital. It is understood that Network Rail's business plan estimates it can function for two years with this money. After that, the company says it will turn to the bond market.

Critically, it is preparing to apply to the rail regulator, Tom Winsor, for a full review of its finances running from 2004 until 2009.

This could see Network Rail asking the Government for up to £7bn. In a letter sent to senior rail industry figures last week, Mr Winsor hinted that he would treat an application favourably.

Technically, the review would determine the amount of money Network Rail can charge train operators for using the track. But in practice, the Government will have to shoulder the burden, as an increase in access charges would cripple the train operators.

But meddling by the regulator will continue under Network Rail. When Railtrack was first placed in administration, senior government officials hinted that the Office of the Rail Regulator would no longer exist. This would have provided an opportunity to do away with access charges and penalties, which created an adversarial relationship between the industry players.

In fact, research by Cap Gemini Ernst & Young shows that last year the train operators' profits were actually propped up by levying penalty charges on Railtrack for late-running maintenance.

Despite repeated claims that the rail industry would unite behind Network Rail, the old, adversarial system of access charges will remain.

These sorts of conflict will be smoothed out by Network Rail's new management structure, claim its backers. The "not for dividend" company will be made up of a 12-strong board, with around half as non-executives. Along with Mr Armitt, Mr Coucher is expected to land an executive role. Of the non-executives, Mr McAllister is set to remain chairman, and Adrian Montague, Network Rail's deputy chairman, will also be a non-executive director.

The board will be accountable to around 100 company "members", drawn from the train operators and public interest groups.

But unlike traditional company shareholders – who have a common goal in the form of capital growth – Network Rail's members will each have their own agenda. Says the chief executive of one train company, who asked not to be named: "After perhaps a year, when everyone will vow to work with each other, there could be some huge rows among the members, particularly the train operators, who will each want to lay claim to investment on their patch."

From privatisation to backtracking

* May 1996: Railtrack floated, generating £1.9bn for the Government

* September 1997: Southall crash

* Late 1990s: consultants McKinsey brought in. Recommended maintaining infrastructure on an as-and-when basis

* October 1998: shares hit high of £17

* October 1999: Paddington crash

* October 2000: Hatfield crash

* May 2001: Railtrack makes first loss of £534m

* October 2001: Stephen Byers puts company into administration

* March 2002: Network Rail offers to buy Railtrack

* 10 May 2002: Potters Bar crash

* 28 May 2002: Stephen Byers resigns

* July 2002: Railtrack EGM