Network Rail losses to hit £500m as debt burden soars

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Network Rail, the state-controlled track operator, cut its losses dramatically in the first six months but warned that they would rise sharply in the second half, leaving it with a deficit for the year of about £500m.

The first-half improvement, which saw pre-tax losses tumble from £233m the previous year to just £34m, was attributed to greater network reliability and reduced maintenance costs. Operating expenditure fell by £70m while Network Rail received a net payment of £51m from the train operating companies under the industry's performance regime compared with the £213m in penalties it had to pay the previous year.

Ron Henderson, Network Rail's finance director, said losses would rise in the second half because of higher interest payments on the company's soaring borrowings and an increased depreciation charge. Net debt rose from £10.3bn to £13.9bn at the end of September and it is expected to increase again to about £16bn by April.

Interest payments for the first half doubled to £306m and will rise again in the second six months as Network Rail takes on the further £2bn of debt. But losses for the year are likely to be about half the £1bn recorded in 2003-04, Mr Henderson added.

The company is having to assume more borrowings because revenue grants from the Strategic Rail Authority to help meet the costs of running the network are being held down over the next two years. The Government will then make good the shortfall in the three years after that.

John Armitt, Network Rail's chief executive, said that train delays attributable to it had fallen 16 per cent in the first half, putting it 5 per cent ahead of its target for the year. This means that another bumper round of bonuses are in prospect for Network Rail executives at the end of the year.

Mr Armitt attributed the improved reliability of the network to its decision to bring all track maintenance back in-house - a process that has meant the transfer of 16,000 employees, 5,000 road vehicles and 600 depots back under Network Rail's control.

He added that the improvement in performance had been maintained so far this autumn - traditionally Network Rail's most difficult period of the year because of leaf fall.

"We are still ahead of target today and that is because of attention to detail. It sounds boring but it pays to make sure you have all the equipment and people in the right place at the right time," Mr Armitt said.

Government plans to reclassify 56 under-used rural routes as "community rail lines" will mean them being subject to less demanding maintenance standards. This is designed to help reduce the subsidies going into the network but Mr Armitt said he was not concerned that it would compromise safety.