Railtrack collapse may cost £7.5bn

Jason Nisse,Jo Dillon,Colin Brown
Sunday 11 November 2001 01:00
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The refusal of Stephen Byers to compensate shareholders for the collapse of Railtrack could cost the taxpayer an extra £7.5bn and undermine the Tube public-private partnership (PPP), senior bankers are warning.

The Transport Secretary has steadfastly refused to pay shareholders in the group for the losses caused when he forced the rail network operator into administration a month ago. He now faces the stark choice of paying out £1.5bn immediately in compensation or losing up to five times as much.

The disclosure will intensify the attack in the Commons on Mr Byers this week by the Tories, who have raised the stakes by tabling a no confidence motion on the minister. Theresa May, the Conservative transport spokeswoman, will attack his behaviour as "shoddy and disgraceful".

Labour MPs last night said they are overwhelmingly backing Mr Byers. Martin Salter, the MP for Reading West, said: "Byers is popular with the backbench precisely because of what he has done on Railtrack."

However, Mr Byers's handling of the affair – and the danger that it could cost the Treasury billions more than it bargained for – will come under attack from three sides: from shareholders aggrieved at the collapse in their share values; from the board of Railtrack, who are pursuing a Financial Services Agency inquiry; and from Tories on the Commons Select Committee on Transport, which sparked the fresh assault.

Next Wednesday's debate and grilling of Mr Byers before the committee will focus on discrepancies between Mr Byers and Tom Winsor, the rail regulator, to establish whether the minister lied to Parliament. Mr Byers has denied that he threatened to use emergency powers to stop Mr Winsor from bailing out Railtrack when the Government moved to put it into administration.

But Downing Street sources "was a statement of fact. They confirmed that Gordon Brown, the Chancellor, did not want Mr Winsor to intervene because any move to raise more money from the train operating companies to bail out Railtrack would have fallen ultimately on the Treasury.

Mr Winsor told the committee he had warned Mr Byers that if he used emergency legislation, he would undermine the Government's policy for PPP deals. His warning was backed by one City banker closely involved in the process, who said the City would now demand between 0.5 per cent and 1 per cent extra interest to cover the "increased risk" of going ahead with the Tube PPP.

Mr Byers needs to finance another £30bn of rail projects and £12bn of transport PPP deals if he is to deliver on promises made by his predecessor, John Prescott. An extra 1 per cent interest would cost £500m a year and, as these deals are typically financed over 15-year contracts, that would add up to £7.5bn.

There is a perception among senior bankers in the City that investors have not been treated fairly, and this is leading banks to refuse to be involved in deals involving the Government.

This will be tested in the next few weeks, when London Underground signs its first two PPP deals with two consortia, Metronet and Tubelines. They have to raise £8bn between them from the City to finance the deal.

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