Railtrack increases West Coast investment to pounds 2bn in revenue-shar ing deal with Virgin

Railtrack is set to invest an extra pounds 500m upgrading the West Coast Main Line as part of an innovative risk and revenue sharing agreement with the operator of the line, Virgin Rail. Michael Harrison examines the funding of the most ambitious rail project this century.

The additional investment by Railtrack will take spending on the modernisation of the West Coast Main Line to around pounds 2bn and allow trains to travel at up to 140 mph. Together with the new fleet of tilting trains Virgin is ordering for the line, total investment will reach pounds 2.5bn.

Railtrack, which owns the country's network of tracks, signalling and stations, had already agreed to invest pounds 1.5bn to update the line and enable it to take tilting trains. This will increase maximum speeds to 125mph.

But the extra pounds 500m will allow speeds to be increased by another 15 mph. This will reduce the journey time from London to Manchester to under two hours and allow Glasgow to be reached in under four hours. Birmingham will be about one hour away from the capital.

In return for the extra investment, Railtrack will take a share of the revenues from the line. These were pounds 220m last year but Virgin believes that the new rolling stock and reduced journey times, together with worsening road congestion, could mean revenues doubling over the next 10 years.

Railtrack, whose overall investment programme totals pounds 10bn over the next 15 years, is expected to complete negotiations with Virgin and announce the revenue sharing deal in the next three to four weeks.

An announcement about which of five competing bidders has won the train order is due around Christmas. Virgin is buying 46 trains for the West Coast Mainline and a further 298 carriages for its other passenger franchise, Cross Country Trains, in an order worth a total of pounds 750m. The Cross Country trains will be diesel drive and the West Coast trains will be electric. But all the rolling stock will be of the tilting variety since some of Cross Country's services use parts of the West Coast Mainline.

The three front-runners for the order are Fiat of Italy, which has teamed up with GEC to offer its Pendolino tilting train, Adtranz, which is a partnership between ABB and Daimler-Benz, and Siemens of Germany. The other two bidders are Bombardier of Spain and CAF of Spain. Final bids are due in on 5 November.

Whichever bidder wins the contest, the trains will be built in Britain. GEC's facilities are in Birmingham while Adtranz owns the old British Rail Engineering works in Derby. Siemens would probably negotiate to carry out assembly work in the UK if it is successful. Fiat has most experience of tilting trains. The Pendolino has been in commercial service since 1976 and there are now 55 trains in operation in Italy, Switzerland, Germany and Finland. Great North Eastern Railways, which took over the East Coast Mainline, has already ordered two Pendolinos and has options to buy a further five.

Although Virgin Rail will lease the trains rather than buy them outright it will help finance the expansion through a stock market flotation planned for early next year. The flotation is designed to raise new money, with neither Virgin Rail nor any of its venture capital partners selling shares.