Department of Transport, Local Government and the Regions
Railtrack: meeting with the Rail Regulator
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Railtrack: meeting with the Rail Regulator
CONFIDENTIAL - POLICY AND MARKET SENSITIVE
OFFICE OF THE SECRETARY OF STATE
FROM THE PRIVATE SECRETARY
6 October 2001
PS / John Spellar
PS / Permanent Secretary
AC RM DH
RAILTRACK: MEETING WITH THE RAIL REGULATOR
You were present on 5 October when the Secretary of State met with the Rail
Regulator, Tom Winsor.
2. The Secretary of State said he wished to inform the Regulator of certain decisions
he had taken that aftenoon in relation to Railtrack.
3. The Secretary of State said that John Robinson had come to see him in June. Mr
Robinson had told the Secretary of State he was appointing new advisers to review
the company's financial position. John Robinson had visited him again at the end
of July arid reported that Railtrack's financial position was worse than previously
realized. He was seeking a letter of comfort from Government and additional
funding next year. In addition, Mr Robinson, and subsequently his advisers, put
forward a series of proposals for a new financial and regulatory structure based on
a new form of "dormant equity" model.
4. You said that Railtrack's proposals included: a 3-4 year convalescence period;
remuneration on a "cost-plus" basis; the setting aside of the regulatory regime;
and the resetting of the regulatory asset base. They had also sought initially a
Government guarantee of a 350p floor price for their shares on emergence from
5. You said that when CSFB, Railtrack's advisors, had first presented Railtrack's
proposals to Government, they had highlighted three possible ways forward:
renationalisation, restructuring or receivership. In effect Railtrack were proposing
that Government should underwrite their costs for the next four years.
6. The Secretary of State said he had been concerned at the financial implications
Railtrack's proposals. He had therefore asked officials to look at this and other
options, including the possibility of the company entering Railway Administration
under the Railways Act 1993.
7. The Secretary of State said he had decided earlier that afternoon that he was not
prepared, in the public interest, to offer additional financial support to Railtrack.
Nor did he intend to proceed with Renewco. He intended to see John Robinson
later. to see if agreement could be reached on the company entering Railway
Adhrinistration. He also intended to say that the Government expected to be
putting forward proposals for a new private company limited by guarantee to
emerge from Administration, which would put the interests of the railway network
8. Tom Winsor said he had had little indication that Railttack's financial position
was so poor, although Robinson had told him soon after becoming Chaitinan that
the financial and management position was worse than he had first thought. ORR
had raised Railtrack's income by 50% on 1 April and worked to improve the
company's performance. He accepted Railttack were losing money under the
performance regime but there was the prospect of an mterim review. You said that
leaving aside West Coast, Railtrack were looking for an extra billion on top of
what the Regulator had already decided they should have.
9. You said that if the licence holder – Railtrack pIc – could not pay its bills, then it
faced Railway Administration as provided for under the 1993 Act. This was the
financial position. Tom Winsor asked whether Government had sought investment
bank advice. You confirmed this had been done.
10.Tom Winsor said that if Railtrack entered Railway Administration, this would be a
severe blow to industry confidence, particularly infrastructure contractors. You
said funding would be made available to the Administrator, that it was the
Government's intention that trade and finance creditors would be kept whole, and
that a major debt management exercise had been planned, in case of an
insolvency. It was hoped that this would ensure stability.
11.You said that at present Railtrack was a paralyzed company; it was trying to back
out of Thameslink and go slow on other projects. The Government's intention was
that Railtrack should emerge safe!y from any Administration and its own proposal
was for a new vehicle drawing on a wide range of railway interests. There was
potential for a better, more stable railway.
12.Tom Winsor asked whether Government intended to act as guarantors of the new
company limited by guarantee. The Secretary of State said he expected the new
company to include a wide range of members. It would not score against the
13. Tom Winsor said that Robinson was likely to receive legal advice that he should
seek an interim review. The Secretary of State said he had authority to bring
forward a short bill, if need be, to enable him to give instructions to the Rail
Regulator as to the exercise of his functions, which could be used to prevent an
interim review from being granted that would undermine his decision not to
provide additional public funding. Tom Winsor said he assumed Government
would prefer not to take this course; in his view it ran counter to the face of
Government statements about other regulators. Such action would run the risk of
raising the cost of capital in other regulated utilities. The Secretary of State said he
would pursue this course of action if it became necessary to do so.
14. Tom Winsor asked how long administration, if granted by the Court, would last.
You said the aim was 3-6 months. You said you expected to have to petition the
Court for an administration order by Sunday night or make an announcement
about the decision not to fund at the latest on Monday morning.
15. Tom Winsor asked whether there were any steps the Secretary of State wished the
ORR to take. The Secretary of State said it would be helpful if, over the weekend,
Tom Winsor could give some thought to the future roles of the SRA and ORR and
how the regulatory regime might change. He would welcome Tom's guidance on
Railhub Archive ::: 2001-10-06 DTR-002