Government review 'endangers' £20bn cash for railways

The City is warning that Network Rail's plans to tap the bond markets for £20bn could be undermined by the Government's review of the rail industry.

The City is warning that Network Rail's plans to tap the bond markets for £20bn could be undermined by the Government's review of the rail industry.

Transport Secretary Alistair Darling's review is nearing its climax, with the main rail players making their opinions public on how the industry should be restructured.

Mr Darling insists no decisions have been taken. But the latest annual report from the Department for Transport (DfT) reveals that: "It must be for the Government to decide how much public money is spent on the railways and to determine its priorities." A source close to the review said the Government was looking at centralising decision making.

This has troubled the credit-rating agencies, which believe greater political control of the railways will damage market confidence. "This may put off some investors as they don't like political volatility," said John Hatton, an analyst at Fitch.

The rail regulator currently has a hand in determining how much money Network Rail is allowed to spend. In the last five-yearly review, it set the com- pany's spending at £22.2bn. Mr Hatton argued that if the Government took greater control, it could be "dogged by the spending profile of the Treasury".

There is also concern, stoked last week by comments made by Transport minister Kim Howells, that the role of the regulator may be watered down. Michael Wilkins, an analyst at Standard & Poor's, said: "If the Government's commitment to independent economic regulation is devalued in any way then this would be very worrying."

Network Rail has already issued two main tranches of bonds, valued at £4bn and £6.5bn. It is expected to launch a third £20bn issue later this year to refinance its debt and to invest in the network. The Government is understood to be aware that the City is fretting over the review.

A source close to the DfT said: "The priority is to ensure that whatever happens, the financial institutions are not disturbed as they were when Railtrack was put into administration."

Another source said the Strat- egic Rail Authority's submission to the review had been well received by the DfT. Chaired by Richard Bowker, the SRA wants the Government to create a new body called National Rail, bringing together Network Rail and the SRA's franchising function.