Watchdog set to crack down on Railtrack charges

The rail regulator will next week launch a review of track access charges levied by Railtrack, which is likely to mean a cut in the company's revenues. Randeep Ramesh, Transport Correspondent, reports on the latest toughening in the operating regime for the group which owns the track and signal network.

John Swift QC, the regulator, is to tighten the price formula covering billions of pounds of track access charges, paid by operators to Railtrack. The existing price control, which cuts charges by two per cent below inflation each year, expires in 2001.

What has perturbed the regulator is not only that Railtrack is entitled to rake in large access fees, but that it also has no obligation to spend them on the network at the level the Regulator assumed when he allowed the company to nearly double its charges in 1995.

In fact, until Mr Swift had wrung from Railtrack a licence amendment which committed the company to pounds 16bn of spending over a decade, executives were not bound by any contractual arrangements. Officials have also noted that Railtrack made a pre-tax profit of pounds 346m - when 94 per cent of its income came from fixed track access charges.

The high level of the track access were meant to ensure that a replacement railway would built in the "fullness of time". It was not, say officials, there to bolster Railtrack's bottom line.

The purpose of the regulator's announcement next week not simply to make it cheaper for train companies to run trains. One option being considered would see the track charges reduced and then any savings being used to cut subsidy to the operators.

Despite the legal complexities this would entail, officials at the Office of the Rail Regulator (ORR) point out that it would mean there would be more money available for the Department of Environment, Transport and the Regions.

A tough price review would certainly affect the company's profitability but, analysts point out, some of it could be made up by the largely property rental and sales. Not all track charges would be altered. They vary in length from seven to 15 years - having started in 1994.

Another option is for the regulator to force Railtrack to become "more efficient". This would see a change in the performance regime which many train companies suspect is being too easily met by Railtrack. Last year, the one of the "principal reasons" that revenue from the passenger train franchises grew by pounds 116m was that "there was a substantial improvement in the contribution from the performance regime".

One company Connex is appealing to get its pounds 9m bill reduced because, it argues, the performance of Railtrack in the yardstick year of 1994 was "dismal". More worrying for Railtrack is that Mr Swift is investigating a pounds 46m "weather provision" made in 1997. This was pounds 26m more than the previous year and it is understood Mr Swift has "concerns" about the amount put aside.

City pundits were blunter. "Railtrack has been taking the regulator for a ride. It is no surprise that he will play hardball," said one analyst.

Mr Swift is also playing a political game. Rather than co-ordinating his actions with John Prescott, the Deputy Prime Minister with responsibility for transport, the regulator has "gone it alone". This is unlikely to endear him to Mr Prescott, now in Kyoto for the conference on climate change - who has made it clear he wishes to be kept abreast of any new developments.

The news of the review will dampen Railtrack's high spirits. Earlier this month, the company announced a 10 per cent increase in interim pre- tax profits.

Pre-tax profits increased pounds 173m to pounds 190m before Railtrack's windfall tax of pounds 155m. The improved profits were made despite a pounds 18m restructuring charge and a pounds 28m bad weather provision.

The results were cautiously welcomed by Mr Swift. Noting a 38 per cent increase in Railtrack's investment programme, he said: ``It is long overdue but the interim results show that it is now under way.''