Network Rail is set to take a big step towards financial independence by surrendering the government guarantee that gives it access to cheap loans (link below.)
http://www.rmtbristol.org.uk/2008/02/network_rail_gives_up_governme.html#moreTalks between Network Rail, the government and rail regulator are yet to be concluded, but the guarantee – controversially given to the company when it took over the running of the nation’s railways after the demise of Railtrack – is expected to be axed from April next year.
Network Rail would then have to raise new loans on its own account. It would also have to pay the government a fee for the use of the guarantee on existing loans – in the same way that the buyer of Northern Rock (news since superseded -
http://news.bbc.co.uk/1/hi/business/7249575.stm) will have to pay for government guaranteed borrowing. Network Rail has borrowed about £19 billion with government underwriting, and will have to raise another £10 billion over the next five years without it.
Industry executives said the move marked a big change for Britain’s railways, signalling a shift away from reliance on state support. The move could also have a significant effect on the public finances, making it less likely that the company’s sizeable loans will be included in government borrowing figures.
The Office of the Rail Regulator, which outlined the move in a report last week, said:
“Raising unsupported debt represents a key milestone in Network Rail’s progress to financial independence. It is also central to our objective of improving the incentives facing the company. This is because it will introduce both a hard budget constraint on Network Rail and greater external scrutiny of its performance.”
It is understood Network Rail proposed the axing of the guarantee to the regulator.
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