Railtrack debacle threatens to raise PPP lending rates

One of the leading lights involved in public private partnerships (PPP) has claimed that the Railtrack fiasco could dampen the willingness of banks to lend on major public projects. The warning comes from Gareth Jones, outgoing head of Abbey National's treasury division, one of the biggest lenders on British PPP schemes.

"It is very worrying when the Government moves the goalposts," he said. "Following Railtrack's collapse, we will be more cautious." Mr Jones said banks may now increase their rates when providing loans for PPP schemes because there is not as much appetite for syndication.

"Syndication is often driven by overseas banks," he added. "It may be a bit more difficult to get them through because there will be fewer takers. If that is the case, we may want a better price."

Abbey National is also among the four banks providing £1.5bn in debt finance to the consortium of airlines that have taken over the running of the national air traffic control system (Nats).

It is understood the banks are having difficulty syndicating the loans, after the US terrorist attacks and the collapse of Railtrack. The other banks are Barclays Capital, Bank of America and HBOS. One well-placed source, said: "There just isn't the appetite. The state of the airlines and the negativity surrounding Railtrack have scared off some banks."

Mr Jones declined to comment, but it is understood Abbey National is committed to providing £375m to the group. It had originally planned to syndicate £125m.

The banks will attempt to syndicate the loans in the first quarter of next year, when, traditionally, banks are eager to take on new loans. But one source said: "There is a good chance the loans will not be syndicated."

The difficulties will not affect Airline Group, which includes Virgin, British Airways and British Midland. A spokesman said: "The funding is already in place. But we are reviewing our business plan in the light of 11 September."

Over the past five years, Royal Bank of Scotland, Abbey National, HBOS, Lloyds TSB and Barclays have become major lenders to PPP schemes. Most banks refused to comment on their PPP strategy. But a spokesman for the Royal Bank of Scotland insisted that the Government's handling of Railtrack had not changed its view on PPPs.

The Government, whose message on Railtrack last week was "passengers before shareholders", will next week launch a PPP charm offensive. On Tuesday Andrew Smith, chief secretary to the Treasury, will tell the City the Government is committed to PPPs. Privately, the Treasury fears the Railtrack fiasco could dampen private sector willingness to build and finance schools and hospitals, as well as run public services.