Outlook: Railtrack

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GERALD CORBETT and Norman Broadhurst make an unlikely Regan and Carter. That has not stopped the two Railtrack executives having fun with the Flying Squad they set up four months ago to put the frighteners on their maintenance contractors. One underperforming contractor has already had his collar felt and a few more may soon be helping police with their enquiries as they say around at the Sweeney.

Maintenance is by far Railtrack's biggest outlay and so a modest 4 per cent efficiency gain on total operating costs north of pounds 1bn leaves plenty more to shoot at. But Corbett and Broadhurst have a bigger villain in their sights. Any day now expect to hear the squeal of brakes as their Mark 2 Granada pulls up outside the Rail Regulator's office.

At the last price review Railtrack was mugged with a formula that left 91 per cent of its revenues fixed and allowed the train operators to expand capacity without any of the extra revenues flowing back to Railtrack shareholders.

That was alright when the business was a dull old utility, with a rating and a cost of capital to match. But now as they approach their first five year price review, Corbett and Broadhurst want Railtrack to be rerated as a go-go stock. Ideally they would like anywhere between 20 and 50 per cent of Railtrack's income to come from risk and revenue sharing deals with the train operators. This would allow it to share in any upside from increased rail travel, such as the explosion in the wrinklies market that the demographic trends point towards.

Of course, a higher risk profile would also justify a higher rate of return on assets which would translate into fatter profits. But if we want a better railway, then someone has got to be incentivised to provide it. Railtrack's rule of thumb is that every 1 per cent cut in access charges means pounds 20m off profits which translates into pounds 100m less investment.

Railtrack's investment programme is already pounds 17bn but, like the NHS, the railways are a bottomless pit when it comes to worthwhile projects and there are already an extra 2,000 waiting in the sidings, starting with a upgrade of the East Coast Mainline.

Ministers and regulators might dearly love to put the screws on Railtrack for the ride its shareholders have enjoyed since flotation. But since no-one else is going to fund John Prescott's dream of an integrated transport strategy it rather puts Regan and Carter in the driving seat.