Railtrack's bill for compensation rockets to £200m

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Compensation payments by Railtrack to the train operating companies have rocketed since Stephen Byers, the Secretary of State for Transport, forced the infrastructure company into administration two months ago.

Estimates circulating in the rail industry indicate that Schedule 8 payments by Railtrack rose as much as 10-fold to about £200m in the six months to the end of October.

The huge rise in compensation payments by Railtrack follows a 45 per cent increase in train delays attributable to the company since Mr Byers pulled the plug on 7 October.

The higher financial penalties faced by Railtrack are one of the main reasons why the administrators, Ernst & Young, now estimate they will need an extra £550m in working capital to fund the business until the end of the financial year. The administrators initially calculated they would need £450m but now think the figure will be nearer £1bn.

In the six months to the end of October, Railtrack paid £54.2m in Schedule 8 compensation to Stagecoach and Virgin Trains for delays affecting South West Trains, the West Coast Mainline and Cross Country Trains. Over the same period last year the figure was just £5.9m. The three franchises account for about 25 per cent of the national rail network. Over the six month period delays attributable to Railtrack on the South West Trains network alone rose by 56 per cent.

Some of the increase is due to the deterioration in the network following the Hatfield crash last October. But industry sources say a large proportion of the increase relates to the worsening in performance since 7 October. "Schedule 8 payments are roaring out of control,"said one rail executive.

At a national rail conference earlier this week, the debate was dominated by how much Railtrack's performance has deteriorated in the past two months. "Everyone is complaining bitterly about the performance of the track and the reaction times of Railtrack in putting things right," said one source.

Stagecoach warned yesterday the collapse of Railtrack would delay urgently needed improvements in services on South West Trains, the busiest commuter network in the country. Although Stagecoach has been selected as preferred bidder for a new 20-year franchise at South West Trains, it has not yet signed a franchise agreement.

Keith Cochrane, the chief executive of Stagecoach said a new £1bn fleet of commuter trains would start to enter service as planned next autumn, replacing the old Mk1 slam door trains. But he added: "Clearly other improvements to stations and track are contingent on us signing an agreement and we cannot say when that will be."

In particular, Stagecoach is waiting for the formal signing before it can proceed with the project to modernise a key 10-mile stretch of track on the main line into Waterloo which will enable it to operate a much more reliable service.