Jason Nissé: Sorry, Mr Kiley, but the Railtrack debacle won't derail the Tube

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The Independent Online

I find it hard to have much sympathy for Jo Moore: this paper, this section and this writer have all been at the wrong end of her spinning in the past. But reading some of the things written in the wake of the Railtrack collapse, I'm surprised she called only one of the writers covering this area a "f...ing idiot".

I find it hard to have much sympathy for Jo Moore: this paper, this section and this writer have all been at the wrong end of her spinning in the past. But reading some of the things written in the wake of the Railtrack collapse, I'm surprised she called only one of the writers covering this area a "f...ing idiot".

Specifically, we have been inundated with speculation that the failure of Railtrack is somehow going to have a debilitating effect on the other big transport infrastructure game in town, the Tube public/private partnership (PPP). This view is being fed by Bob Kiley, Ken Livingstone's transport commissioner, who was chucked out of the PPP process because of his attempts to derail it. Mr Kiley argues that the Tube should be bond financed – as was the New York subway when he ran it – and describes the PPP as "fatally flawed". It isn't, as I will explain below.

The Kiley argument – replayed about a dozen times by commentators who should know better – is that the collapse of Railtrack has brought uncertainty to the finance market, which will either not put up the money for the PPP or will do so only at usurious rates.

This fundamentally misunderstands the difference between Railtrack and the Tube infrastructure companies. The two have an important similarity: they both rely on a mix of income from use of the tracks and government subsidies. This income depends on how well they deliver the service: if the tracks are unusable, as they were after Hatfield, the income dries up. Ergo the business becomes insolvent, as Railtrack is now.

However, this is where the similarities end. The Tube PPP was designed by people who saw the fatal flaws in the Railtrack privatisation and learnt the lessons.

The Tube infracos do not buy the Tube network – they lease it on a 30-year contract with strict performance criteria. If the infracos do not deliver, the amount of money they get is greatly reduced. At this point it is not merely a possibility that they could go bust – it is an intended consequence of them not performing. London Underground gets the tracks back if this happens, and then has the option of giving the deal to another consortium or financing the upgrades itself. To add in another wrinkle, the contract is reviewed every five years.

Finally – and this is the important point in understanding why Railtrack's administration has not changed the PPP – there is no government guarantee, implicit or explicit, for any of the infracos. The City, foolishly, always assumed the Government would step in to save Railtrack. Ultimately it didn't, leaving shareholders, bondholders and banks facing the losses you incur if you invest in hope rather than reality.

And another thing...

Next week, I promise I will get off the Railtrack lectern, but there are a few things that need tying up.

First off. Why is John Robinson bleating that the Government gave him no choice over the administration? He was told that Rainbow 2 would be rejected on 3 October and that Railtrack was being put into administration on 5 October.

At any point he could have called an emergency board meeting and asked the directors to resign en masse, leaving Railtrack without the required two safety officers. Britain's trains would have had to stop running, which might have made Stephen Byers stop and think.

Second. Last week I pointed out the Prudential connection between Railtrack and Marconi. But there is an even more striking one – CSFB.

Was it not CSFB that mucked up the Marconi announcement – so costing John Mayo his job? And was it not CSFB that raised the possibility of receivership for Railtrack but felt it did not have to mention this to Railtrack's shareholders?

It's a short walk from the Financial Services Authority's offices to CSFB's. Maybe someone from the former might remind someone from the latter of the disclosure requirements for public companies.

j.nisse@independent.co.uk

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