The company warned that plans to limit the amount it could charge train companies would make it more difficult to raise money on the financial markets. And it appeared to put itself on a collision course with the Government by hinting that it might pull out of projects such as the Channel Tunnel rail link and London Underground.
Chris Bolt, the rail regulator, plans to cut the amount that the company can charge train companies to use the track, and will demand tougher performance targets. He said he could impose unlimited fines on Railtrack if it failed to deliver.
Analysts said the new formula could cut Railtrack's profits by pounds 100m. In its last full year, the company reported pre-tax profits of pounds 388m on turnover of pounds 2.46bn. Mr Bolt said his move would allow passengers to benefit from lower fares, extra investment or even a tax rebate.
Mr Bolt yesterday outlined the basis on which Railtrack's finances would be regulated over five years from 2001. It would be allowed to make a return of between 5 and6 per cent on its assets, not the 10 per cent he said it now made. He plans to define the asset base against which returns will be measured at pounds 2.54bn - its flotation value - rather than its pounds 8bn stock market value. Every 1 per cent cap could cut pounds 20m off its profits.
"Current returns appear to be excessive," Mr Bolt said. He said his proposal was not open to negotiation and it was up to Railtrack to decide whether it wanted to behave like a monopoly utility or an innovator. He challenged Railtrack to outline "new ways" of delivering a better railway that would involve it taking more risk, and therefore earn a higher reward. Railtrack's deal with Virgin Trains to bring the West Coast main line from London to Glasgow up to 140mph instead of about 100mph in exchange for a share of revenue could be a model.
Mr Bolt added: "Train operators will see a reduction in access charges and whether that gets put into higher investment, lower fares or back to the taxpayer is a matter for John Prescott [the Deputy Prime Minister]."
Railtrack said the regulator's proposals were "very disappointing". Gerald Corbett, the chief executive, warned that it would damage the company's ability to invest in necessary work and accused Mr Bolt of failing to take account of projects such as London Underground and its option to build the second phase of the Channel Tunnel rail link. "Mr Bolt is adopting an old-style, traditional utilities approach to our charges and it's out of date," he said.
But Mr Bolt said his job was to regulate the national network rather than new projects.
A spokesman for the Department of the Environment, Transport and the Regions, for which Mr Prescott is responsible, said yesterday: "The Government thinks everybody should take a sensible view. Either they want the Government to... regulate it up to the hilt or they want to start delivering a better service."
The Rail Freight Group welcomed Mr Bolt's move, saying the company had "failed" the industry and had invested only pounds 5m in freight infrastructure, or 0.5 per cent of total investment, even though it provided 10 per cent of its income.
Meanwhile, the Commons Select Transport Committee criticised Railtrack's monitoring of its contractors. Its report said: "Where the causes of incidents which could have led to serious accidents are attributable to the incompetence or inadequate site knowledge of staff, Railtrack must take responsibility for the work of its contractors."
A spokesman for Railtrack said the company had already decided to take a more "hands-on approach" when the maintenance contracts were re-let. "We admitted ourselves that we need to get tougher on the management of maintenance contracts and we have hit squads to monitor the quality of work."
News analysis, page 21Reuse content