Newspaper article The Evening Standard (London, England)

Need for Speed on Railtrack's Costly Administration

Newspaper article The Evening Standard (London, England)

Need for Speed on Railtrack's Costly Administration

Article excerpt

Byline: JOANNE HART

IT IS common knowledge that the administration of Railtrack is costing the Government [pound]1 million a day. The figure is guaranteed to cause outrage but it pales virtually into insignificance compared with the total amount this company is costing the taxpayer.

Administrators Ernst & Young have already spent more than [pound]1.2 billion in two months, implying a daily figure of around [pound]17 million.

The accountancy firm has calculated it will need [pound]3.5 billion to the end of March, which works out at more than [pound]20 million a day.

Some of that would have come from the State, even when Railtrack was in private ownership, via the Government subsidies that the group relied upon to keep going.

There is no doubt, however, that Railtrack's current status is proving more expensive to the taxpayer than its previous incarnation.

Railtrack bondholders, who are owed around [pound]1.5 billion, have been attempting to calculate the cost of Transport Secretary Stephen Byers' decision to put the company into administration.

They believe the move will end up costing taxpayers between [pound]5 billion and [pound]10 billion. The extent of the range underlines how hazy Byers' plans remain, even though Railtrack has been in administration for almost three months. But even the low end of the range is an unpleasantly large sum of money.

The extra costs filter through in two ways. First, the numerous advisers that the Government is having to pay to oversee Railtrack and to work on ways to take the company into the future. Second, and more importantly, the effect on cost control of knowing that the business is now effectively in State ownership.

Managers who know they have ultimately to report to private shareholders are under pressure to be disciplined. Managers who know that the Government is their paymaster tend to relax the purse strings. This has the potential to be particularly problematic in Railtrack's case, since so much of its work is subcontracted to third parties. …

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