Regulator to review funding for Railtrack

The rail regulator, John Swift, yesterday launched a fresh attack on Railtrack, criticising its investment record and launching a review of up to pounds 300m of public subsidies the company receives.

The broadside came as Railtrack, which runs the country's rail network, announced a 27 per cent increase in pre-tax profits last year to pounds 346m and mounted a vigorous defence of its pounds 16bn investment programme in new track, signalling and stations.

In a surprise statement, Mr Swift said there was still "a very long way to go" for Railtrack to deliver on its investment obligations. He also announced a review of the money Railtrack receives under its performance incentive regime to establish whether shareholders were benefiting disproportionately. Mr Swift said Railtrack had already made pounds 87m more than was assumed when it was privatised a year ago.

Railtrack shares fell back following Mr Swift's statement on fears the company was facing a much tougher regulatory environment, although they still ended the day 13.5p up at 658p.

Earlier John Prescott, the Deputy Prime Minister and Secretary of State for Transport and the Environment, criticised Railtrack's profits, saying: "I do not think that is a good deal for the taxpayer."

The company reacted angrily to the twin attack on its profits and investment record. Sir Bob Horton, chairman, said: "I do not think we are making too much money. I think we are being just about adequately rewarded for the capital, both in terms of intellectual capital and physical capital, that we are putting into the business. It is quite unreasonable to expect us to get up and modernise every single station in this country overnight. We are getting on with that as fast as we can."

John Edmonds, chief executive, said later that Railtrack could go to the Monopolies & Mergers Commission or seek a judicial review if the regulator sought to reduce the amount of access charges it received from the passenger franchises.

At issue are the supplementary charges Railtrack is allowed to levy on train operators to cover its costs if its performance falls below set levels or it incurs extra costs because of bad weather. The charges amount to pounds 300m over the six years to 2001. Last year Railtrack received pounds 93m which, after payments to suppliers and provisions for severe weather, netted it a pounds 26m profit.

Mr Edmonds said that if the supplementary charges ceased then the performance regime would collapse and Railtrack would have no incentive to improve its efficiency. He also criticised the "smoke and mirrors" that surrounded the regulator's comments on Railtrack's investment record.

Mr Swift said Railtrack's record profits showed it had the funds to invest in the network but it had a very long way to go to make good the pounds 400m backlog on property spending and the pounds 277m shortfall on track and structure renewals. Mr Edmonds said Railtrack had already spent pounds 105m more than was necessary under the pounds 3.5bn investment programme agreed with the regulator up to 2001.

Sir Bob refused to be drawn on whether Railtrack's bumper profits made it more likely that it would be caught by the windfall tax. But he said whether it was included or not would make no difference to its investment programme. This includes the pounds 550m Thameslink 2000 project, the pounds 1.2bn upgrading of the West Coast Mainline and the regeneration of 300 stations by the end of the year.

Operating profit was up by 15 per cent to pounds 339m on turnover of pounds 2.4bn and the dividend was lifted by a more modest 7.6 per cent. Profits from property disposals climbed to pounds 38m while Railtrack cut operating costs by 4 per cent compared with the 3 per cent set by the regulator under its price control formula.

Railtrack announced its 10,900 staff would each receive pounds 1,000 worth of free shares. Sir Bob said Railtrack directors had received annual bonuses, though not the maximum 40 per cent.

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