Rail privatisation is right on track

The public perception of rail privatisation is that most of it is stuck in a siding and will have trouble getting out again because wet leaves have jammed the points. The Government has quietly admitted that the target of having 51 per cent of the train operating companies in the private sector by next April, measured by revenue, might now be missed.

Meanwhile, there is a serious question mark over whether it will want to float Railtrack, owner of the railway lines, before it has a substantial number of these operating franchises let. SBC Warburg, the merchant bank advisers, think that does not matter, but ministers are not so sure. The sale could well slip from the spring and problems would then mount, because it would clash with nuclear privatisation, which is some way behind in preparation.

Railtrack and the franchises are the controversial parts of the sale, but it has largely escaped notice that, measured by the cash proceeds rather than passenger revenues, privatisation might well be approaching half complete by the end of this financial year.

Without counting Railtrack, there are currently pounds 2bn of rail assets on offer. This includes a variety of engineering and service businesses and three passenger franchises, though these will not produce revenue since successful bidders will be proposing the lowest subsidy. Among this hotch-potch are also the three rolling stock leasing companies, the gems of the first stage of the sell-off, which should be worth at least pounds 1bn, and perhaps even pounds 1.5bn.

The Roscos will own the engines and trains and lease them to the franchise companies, taking the burden of capital investment off the train operators. This encourages the likes of bus companies, that otherwise could not afford the entry costs of buying rolling stock, to become railway operators. Firm offers for the Roscos are scheduled to arrive at Hambros, the merchant bank handling the sale, by next Friday, and the deals could be done by the end of the year.

If these sales come off, there is all the more reason for not selling Railtrack in a tearing hurry to meet a political timetable, a recipe for giving the taxpayer a bad deal. The right strategy, given the amount of other rail privatisation revenue coming in, is to sell only a minority of Railtrack next year, to see how the market likes it, and hold back the rest for a better price.

But that is probably too sensible for a Government under desperate pressure to raise revenue at any price.