Shadow transport secretary Clare Short warned that a far tougher regulatory regime would hit investors in their pockets.
"We want to warn potential buyers ... to think very seriously before they buy shares in Railtrack. New regulation will impact their rate of return," she told the Independent on Sunday. "We are deadly serious about this." Changing the regulatory regime, she said, would require only the simplest of legislation.
Fears of tougher regulation, which has already hit other utility companies, will lead to City demands that Railtrack shares be sold at a steep discount. That will fuel a political row over state assets being sold on the cheap.
The yield on the shares could reach 8.5 per cent, giving shareholders the biggest dividend returns of all privatised utilities. With a predictable income through its access contracts with train operators, Railtrack is seen as closest in style to utility companies such as water and electricity.
In a long-awaited policy speech a week ago, Ms Short unveiled Labour's rail policy, where she argued the case for a "publicly accountable railway".
The City took the speech in its stride, largely because of Labour's tacit acknowledgement that renationalisation was not a realistic option. Railtrack sources say it is too late for the party to have more than a marginal impact if it wins the next election.
"Labour have agonised long and hard over their policy on rail, and Clare Short's speech was the culmination of this. However, they won't be able to make any fundamental change, because most of the business is bound by contracts," one source said.
Ms Short said Labour would insist that the railways regulator, John Swift QC, would report directly to the Secretary of State. At present he works within the framework of the RPI-X formula, which has limited increases in charges by Railtrack to inflation minus two per cent over the next five years.
Privatising Railtrack has already proven a political headache for the Government, with last year's signalmen's strike costing the company pounds 148m. One anomaly of the business after privatisation is that it will remain dependent on public subsidy, through the pounds 1.8bn a year paid to the 25 train operators.
Initial marketing to institutions began in January, but will only move into top gear after publication of the pathfinder prospectus on April 15. The Treasury is also hoping individual investors will support the issue, with 30 per cent set aside for retail demand. Such investors will also qualify for a discount on the price the shares are sold to institutional investors, which will be announced in early May. A multi-million pound TV advertising campaign by agency WCRS is currently running.
Until the prospectus is published, hard figures are unavailable. But the company should be paying a dividend worth pounds 100m to investors, which would be covered just two times by profits. However, as with other utilities, Railtrack is expected to lift profits by savage cost savings. As one analyst pointed out, National Power and PowerGen between them promised cost cuts, through sackings and other efficiencies, of 40 per cent within five years. In fact they cut costs by 60 per cent in three years. Britain's railways could reap an even more explosive demonstration of private sector disciplines.
In case cries of selling off too quickly and too cheaply could run and run.Reuse content