Advisers vie for £130m role in Network Rail privatisation plan

Exclusive: Accountants and banks will advise on everything from taxation to acquisitions

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The Independent Online

The big four accountancy firms and investment bank NM Rothschild are in the running for a £130m deal to revamp the beleaguered Network Rail.

The state-backed owner of 20,000 miles of Britain’s most important lines and 18 stations, including Manchester Piccadilly and Leeds, has asked for bids from accountants and banks to join a framework in which they will advise on everything from taxation to acquisitions.

The framework is divided into six lots, each of which are expected to go to a handful of bidders. The accountancy giants KPMG, EY, PwC and Deloitte are thought to be interested in providing corporate finance, infrastructure and accounting advice. Bids are due in this week.

Crucially, big banks, including Rothschild, are eyeing roles on lot three – equity execution advice – which would involve working out how to semi-privatise the organisation.

Rothschild is a favourite of Network Rail; the bank is looking into how it might be able to raise more than £1bn from property sales, notably including the homes of businesses based under railway arches. The lead banker, Simon Linnett, advised Network Rail’s predecessor body, Railtrack.

Several directors are understood to be unhappy at what they consider to be interference from the Government ever since Network Rail’s £38bn debt burden was dumped on the public books last year. They believe that selling a stake in the business would reduce the Department for Transport’s influence, because it would have to consider the impact of its  decisions on the shareholders. Sources have described this as a “political buffer”.

The Transport Secretary Patrick McLoughlin has imposed a “special director”, the former Eurostar chief executive Richard Brown, on Network Rail’s board to report directly to him, and replaced chairman Richard Parry-Jones with the Transport for London commissioner Sir Peter Hendy.

Mr McLoughlin has also “paused” expensive electrification projects on the Midlands Main Line and TransPennine route, while the High Speed 1 chief executive Nicola Shaw has been asked to review the future financing of Network Rail. Politicians have been angered by chaotic scenes at London stations caused by engineering over-runs.

The bank selected to look at how to structure a deal with the private sector would be asked to investigate whether an investor could be given a concession to run infrastructure in an area of the country where services are relatively straightforward.

The Department for Transport would almost certainly move to veto such a plan, but a source close to Network Rail said there are hopes that the Treasury might be attracted to the idea and overrule the department.

A source bidding for work on the framework said: “The way the framework is set up and briefed [in the tender documents] is vague, but you don’t have to be the brain of Britain to work out where this is going [part-privatisation].”

The source added that there was “surprise” that the overall framework, which is set to last three years, was worth as much as £130m.

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