The Railtrack murder mystery

Behind-the-scenes plotting sealed the fate of the rail operator. Clayton Hirst investigates
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The Independent Online

It took just 45 minutes for Stephen Byers to deliver the first blow to Railtrack. It was just before 5pm on 28 September. Inside the Transport Secretary's gloomy glass-fronted building in London's Victoria, Railtrack chairman John Robinson was told there would be no more government money.

The next day, at 5.45pm, Mr Robinson sat in a makeshift courtroom in the offices of law firm Cameron McKenna. When asked if he contested an application to place Railtrack plc into administration, he grimly said, "No". Mr Byers had put an end to the disastrous five-year experiment to privatise the railway lines.

But the Secretary of State wasn't alone in killing off Railtrack. Behind the scenes there is evidence – some direct, some circumstantial – that links Cabinet ministers, top civil servants and advisers to the scene of the crime. What's more, Railtrack's demise had been plotted for nearly a year.

Let's go back to 25 July of this year, a key date in the downfall of Railtrack. The recently appointed chairman, John Robinson, had arranged an urgent meeting with Mr Byers. Mr Robinson says: "That meeting was to kick-start a process of working out a better future for Railtrack and, frankly, for the Government." He wanted to end the uncertainty hanging over Railtrack "running through the interims", planned for 8 November.

Government sources claim that Railtrack outlined its financial woes, in particular that it might have difficulty issuing a planned £2bn-£3bn bond. Mr Robinson says: "We talked about the bond, but that was not the point of the meeting. We were saying that we were putting that on hold while we sorted out other things."

Over the next few weeks, Mr Robinson laid out a restructuring plan. The Government would fund Railtrack's cash shortfalls, and shareholders would be guaranteed between 350p and 500p a share in four years. Mr Byers rejected the plan, then dubbed Project Rainbow.

It was now August, and Mr Byers was preparing for his holiday. Before his bags were packed, Ernst & Young, now Railtrack plc's administrator, had been secretly told that it could soon have a big job on its hands. At this time the Government was finalising its own plans for Railtrack, known internally as Project Ariel. Mr Robinson wasn't told about the phone call to Ernst & Young, or of Ariel. But one senior government source says: "Robinson knew that administration was a real possibility."

In an early meeting between Railtrack's adviser Credit Suisse First Boston and senior transport official David Rowlands, the investment bank said there were only three options for Railtrack, dubbed the three Rs: restructuring, renationalisation or receivership. Tony Blair had already made it clear that renationalisation was not an option. Everything rested on restructuring.

Mr Robinson then hatched Rainbow Two. In return for cash and lighter regulation, the Government would receive an equity stake in Railtrack. This would be on a sliding scale: the worse Railtrack performed, the greater the Government's stake. One senior government source says of the plan: "They were asking us to restore value to shareholders using taxpayers' money. This was not acceptable."

One hour before Mr Robinson met Mr Byers on the fateful Friday, telephone calls were being exchanged between the Transport department, the Treasury and Mr Blair's office. It was agreed that Railtrack's plans were to be binned. Project Ariel – to put Railtrack plc into administration and replace it with a private company limited by guarantee – would be enacted.

But where did this grand- iose plan originate? Whose fingerprints are on this deadly instrument against Railtrack? Gordon Brown played a crucial role. As the keeper of the coffers, it was Mr Brown who said that enough was enough when it came to Railtrack handouts. In the summer Mr Brown asked his special adviser Shriti Vadera to review the future of Railtrack, as first revealed by The Independent on Sunday.

Ms Vadera is a hard-nosed former banker at UBS Warburg. Known for her glamorous lifestyle, she helped to push through the privatisation of London Underground. It is understood that she does not see eye-to-eye with Mr Byers, but provided advice for Project Ariel, according to Treasury insiders. She has close links with the think-tank IPPR.

Some observers were surprised that Mr Brown approved the company that will now replace Railtrack. Sources say that he is not a fan of private company structures without an equity base. But Lord Burns, the former Treasury permanent secretary, became an unwitting accomplice to Mr Brown in the Railtrack saga. Now chairman of Welsh water company Glas Cymru, which was set up along similar lines to the Project Ariel plans, Lord Burns had a subtle influence on Mr Brown. "Seeing Glas Cymru work made the Treasury more amenable to the plans," says one government adviser.

IPPR also picked up on the idea. On 21 February the Labour-friendly think-tank published a paper mapping out an alternative for Railtrack. It bears an uncanny resemblance to Project Ariel. The paper was launched at a seminar at which the guests were Dan Corry, policy adviser to Mr Byers, and Brian Hackland, transport adviser to No 10's policy unit.

Tony Grayling, the report's author and senior IPPR research fellow, says he is "delighted" with Mr Byers' intervention. But he denies that there was an ongoing discussion between ministers, officials and the IPPR after publication of the report.

Railtrack's demise was inevitable. In this game of corporate skulduggery it doesn't take long for the budding detective to work out what triggered its downfall: rail privatisation. Sir Steve Robson was one of the architects. Legend has it that the former Treasury official sketched the plan for rail privatisation on the back of an envelope during John Major's reign. Another was Roger Freeman. He worked as transport minister under two secretaries of state, making detailed preparations.

But rail privatisation was deeply flawed. Railtrack was given no incentive to invest, and the level of investment in the network was itself grossly underestimated.

After Railtrack was floated in May 1996, generating £1.9bn for the Government, things looked up. Shares soared under Railtrack's two chairmen, Sir Robert Horton and Sir Philip Beck, and former chief executive Gerald Corbett. But it became clear, after three major rail crashes, that investment was woefully lacking.

A shake-up of the board saw Steve Marshall become chief executive and John Robinson chairman. Their approach was right: invest heavily in the network. But it was too late. The plotters, schemers and executors had already made up their minds.