Crossrail link puts Railtrack sell-off at risk, says report

CHRISTIAN WOLMAR

Transport Correspondent

The privatisation of Railtrack would be put in jeopardy if the pounds 2.8bn Crossrail project across London goes ahead, according to a leaked report from the Department of Transport.

The study, by Nick Montague, the civil servant who is steering through rail privatisation, is likely to be seen as putting pressure on the Government to drop or delay a big infrastructure project to make the Railtrack flotation acceptable to the City.

The study is broadly supportive of the controversial Crossrail project but warns that it may have unpredictable effects on the Railtrack privatisation, scheduled for next spring. Mr Montague refuses to commit himself wholeheartedly to the project.

Despite the strong support of the City, its future is clearly hanging in the balance.

The problem is that Crossrail, which links the suburban networks out of Liverpool Street in east London and Paddington in west London with a tunnel, would be by far Railtrack's largest project, imposing huge potential risks given the unpredictable nature of big civil engineering projects.

"Crossrail would be large relative to Railtrack's balance sheet if Railtrack took the project forward," Mr Montague writes. While there were precedents for privatisations in these circumstances, "it would not be desirable to structure Railtrack's privatisation balance sheet around Crossrail, not least because of an unnecessary reduction in proceeds if the project did not subsequently go ahead". The report adds: "Overall, Crossrail complicates the Railtrack privatisation and a commitment by Railtrack to proceed would certainly have a significant impact on the cashflows of the company."

Although the effects cannot be predicted precisely, "the impact upon flotation prospects and proceeds would need to be carefully considered". It goes on to suggest that it may be more simple for the project to be shelved: "If Crossrail were to be cancelled, the market might at least be glad of the certainty."

Mr Montague argues that "for Railtrack privatisation, the market would look hard at the risks of a tunnelling project such as this; but conversely, potential investors in Railtrack might draw a discouraging conclusion if Railtrack were not to undertake a project for the future such as this".

He suggests it may be better to separate Crossrail from Railtrack initially to allow the company to be sold off and then "a privatised Railtrack could be involved at a later stage".

The report estimates the benefit-to-cost ratio of the project, which was rejected by a parliamentary committee last year but still has the support of the Government, at between 1.4 to one and 1.7 to one. The project is now much more predicated on off-peak demand, which would contribute about half its revenue, than rush hour travel, as under previous assumptions.

Mr Montague concludes that the project is "a reasonably good project in economic terms" though it is expensive, and he expresses doubts about whether it would be able to attract the "substantial private funding" promised by ministers because of the high risks.

Unlike the Channel tunnel rail link, which is being steered through Parliament at the same time as private finance is being sought, the report says "private finance should not be sought until after the statutory powers to construct the projects had been obtained". The report is with the Transport Secretary, Sir George Young, who is expected to make a decision on the project by the end of the year.