Speedy rail sale `lost' pounds 1.5bn

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The Independent Online
TAXPAYERS MAY have lost out on hundreds of millions of pounds from the privatisation of Railtrack because of the Tories' haste in selling off British Rail, according to a report by the Government's watchdog.

The National Audit Office said ministers pressed for a quick sale to get all Railtrack shares into the private sector before Labour came to power.

In a report out today, it said a phased sale, which would have left the new government with a substantial stake, could have raised an extra pounds 1.5bn.

The NAO said the Government and its financial advisers started with a presumption of a one-off sale. Its report recommends that any future privatisations are carried out on the basis that a phased sale would get better value for money.

Other key findings include:

r Appointing one City firm, SBC Warburg, as adviser andco-ordinator of the flotation led to "potential conflicts of interest".

r Shareholders were offered a "sweetener" in the form of a pounds 69m dividend to make the deal comparable with other sell-offs. The NAO said the correct comparison was other investment opportunities at the time;

r A decision to structure the split between debt and share capital in order to support the Thameslink 2000 project could have cut Treasury proceeds by another pounds 225m.

David Davis MP, chairman of the Commons Public Accounts Committee (PAC), said: "The flotation of Railtrack is yet another case where a failure to apply PAC recommendations has caused the taxpayer to lose out, this time to the tune of some pounds 1.5bn, in an otherwise successful privatisation."

The former track and signalling business of BR was floated on the stock market in May 1996 for pounds 2.5bn. The shares have surged since then. Earlier this year the company was worth about pounds 8bn.

Sir John Bourn, head of the NAO, said: "The increase in Railtrack's share price suggests that a phased sale, if it had been achievable, would have been likely to yield much larger returns than a sale of all the shares at once. Where privatisations have been carried out in stages they have nearly always resulted in higher total proceeds for government than if 100 per cent of the shares had been sold initially."

The draft report took a year to publish because the Department of Transport and the City advisers wanted to include their versions of events. The department told the NAO that a phased sale would not have been achievable and that there would have been a real risk of the privatisation failing.

Business Outlook, page 15