Sun, Nov 25, 2001 page11

• Blair needs US$5 billion to save railways

  • THE GUARDIAN
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  The desperate plight of Britain's rail industry was exposed on Friday when the government confirmed that it will have to pay at least Euro $3.5 billion (US$5 billion) to the administrators of the failed Railtrack company up to April next year just to keep the national network operating.

  Government sources said that the administrators had found "a huge black hole" in Railtrack's finances that will have to be plugged by the taxpayer.

  The crisis is so great that the ultimate cost could be even greater than US$5 billion because the administrators, Ernst & Young, have not worked out the final figure.

  The position should become clearer when the administrators present their first report to Stephen Byers, the transport secretary, next month. It has been delayed because Ernst & Young discovered a vast and complicated state of affairs within the bankrupt company which it is still trying to unravel.

  The extraordinarily dire state of Railtrack's financial position has alarmed senior civil servants at the Department of Transport.

  The administrators were given US$3 billion when they were first called in by Byers on Oct. 7. Since then the figure needed has risen by another US$2 billion.

  The Department of Transport said last night: "These are early days. The administrators are continuing to carry out their investigation. We are waiting for their official report which will be made public."

  Ministers are hoping that they will be able to recoup some of the US$5 billion from Railtrack's assets. But apart from its property portfolio, the company's assets are likely to be minimal and a large part of the bill will have to come from the taxpayer.

  The government has already taken steps to alert the European commission that it has been forced to bail out the private company -- a move that would normally be against EU rules -- or face the collapse of Britain's railway network.

  The government's action shows that it is determined to keep the railways operating with considerable amounts of public money. But last night's revelations also expose the poor state of the rail network and the amount of money that is necessary to revive the industry.

  Byers' plan to place Railtrack into administration has been widely welcomed in spite of the attempt by Railtrack and the City to use the plight of shareholders to attack him. But the transport secretary still has to convince his critics that his plan to replace Railtrack with a not-for-profit company will work.

  Railtrack challenged the government's US$5 billion figure -- saying that it did not recognize it. A Railtrack spokesman said: "Our position has been clear to the market for almost a year. The facts are now being spun to justify placing us in a bad position."

  But during Mr Byers' lengthy talks with John Robinson, the Railtrack chairman, from July onwards, Railtrack made it clear that it was seeking an extra US$2.4 billion until the end of the financial year.

  It was this demand that made Byers finally decide to pull the plug. He stressed that he could not justify throwing more taxpayers' money at a lost cause.

  This admission of the significant drain on the public purse is extremely worrying for ministers. While it shows that the government stands ready to support the industry, it also shows that it may have to take the blame if anything goes wrong, such as another major rail crash.

  Byers is still some way off taking his next step towards reshaping the industry with his not-for-profit company, and the administrators' timetable for winding up Railtrack is lengthening day by day.

  Byers' original plan was that their work would be completed within three to six months, but privately Ernst & Young say that their mission may take up to a year.

  Byers is strongly resisting the proposal that he will have to agree to hand on Railtrack to a private company after all.

  But he has been advised by the administrators that he may have to consider this option seriously if they receive an attractive bid.
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