Railtrack plan no u-turn, says Byers

The transport secretary, Stephen Byers, today rejected accusations that taxpayers will foot the bill for a scheme to compensate Railtrack shareholders.

Mr Byers, who has come under fire for his handling of the Railtrack crisis, said a ?300m grant to compensate the company's shareholders would not be a cost to taxpayers, because the money would be recouped by getting Railtrack out of administration months ahead of schedule.

Despite Mr Byers's protestations, the compensation move was widely seen as capitulation to pressure from the City, which threatened to withdraw cooperation in future government projects unless there was generous compensation for Railtrack shareholders.

The ?500m plan - the government's cash plus City loans - would pave the way for Railtrack to be bought outright by Network Rail Limited, a not for profits company set up to replace Railtrack that was previously known as the company limited by guarantee (CLG).

The new company said that it would make separate proposals to repay existing bondholders and fully intended to satisfy all other creditors, but that it would not be flexible on its offer to Railtrack shareholders.

"There is no flexibility," said Network Rail's chairman, Ian McAllister, adding that the group hoped to reach an agreement with Railtrack Group within three weeks.

Network Rail is one of several groups bidding to take over Railtrack. Other bidders include Swiftrail, a consortium of banks that includes the German group WestLP Panmure. The overall deal for Railtrack would be worth about ?1.3bn. The government funds would partially reimburse shareholders who have lost money since Railtrack's value collapsed last autumn, Network Rail said.

"I believe that this approach is the best way to ensure that Railtrack does not remain in administration for a great many months to come," Mr McAllister said. "The 'early exit' payment is the only realistic option for Railtrack Group plc to realise value in the short term."

Anthony Smith, national director of the Rail Passengers Council, welcomed Network Rail's bid.

"It is good news for passengers because it ends the long term uncertainty about Railtrack's position," he said. "The fact that the government money is not coming from railway investment is encouraging and overall it will help Railtrack to quickly be re-established at the centre of the railway industry.

Mr Byers attracted the fury of shareholders when he forced Railtrack into administration by withholding government subsidies for the group last October. The present plan is widely seen as a government u-turn.

The new deal is expected to give Railtrack investors about 250p a share, compared to the 280p the company's stock was worth before it was forced into administration.

The move follows months of denials by Mr Byers that there was any prospect of compensation from public funds for investors in the privatised rail company, who have been threatening legal action. While welcoming the government's climbdown, shareholders said the offer may not be enough.

Stephen Lansdown, an investment banker, said the offer amounted to government recognition that mistakes had been made in placing the firm in administration, and were an attempt to put them right.

But there was still "more hard talking to be done" and shareholders may hold out for more than the expected offer of 250p a share if they have to wait any longer for the cash, he added.

Mr Lansdown was one of the leading city figures who signed an open letter warning that Mr Byers' controversial decision to place Railtrack in administration last October and replace it with a not for profit firm had damaged confidence in government plans.

An offer of compensation was "definitely a victory" for those protesting at shareholders' treatment, Mr Lansdown said. But he added: "I think the question is whether 250p is enough. At the outset ... the suspension price was 280p, so we have been asked to accept a discount for six months of completely unnecessary hassle and in some cases quite some upset.

"And, of course, the original price we were looking for at the outset was 360p so we are not quite there yet."