Industry executives said the move, confirmed this weekend by Network Rail, marked a big change for Britain's railways, signalling a shift away from reliance on the state support provided after the collapse of Railtrack five years ago.

It is also significant for the public finances, reducing the likelihood of Network Rail's £18 billion of borrowings being counted as part of government debt.

Network Rail took over the running of track, signalling and major stations from Railtrack in 2002. It was set up as a company limited by guarantee, without any shareholders, and little chance of borrowing the billions it needed to invest in the network. To fix that funding problem, ministers took the unusual step of providing a written promise that the government would guarantee its loans.

Network Rail has since used the explicit state backing to borrow £18 billion at low rates of interest.

But the guarantee has proved controversial, with critics saying that the government should put Network Rail's debt on its books.

Government-backed borrowing for other transport schemes, such as the new, high-speed rail link to the Channel tunnel, was recently included.

If Network Rail were to count as part of public borrowing, public-sector debt would rise to £496 billion, dangerously close to the limit set by ministers of 40% of gross domestic product.

Ministers have defended the off-balance-sheet treatment of such debt, saying that Network Rail is a private company not directly controlled by government - an argument likely to be strengthened by independent borrowing.

Network Rail is expected to announce this week that all future loans - it is likely to raise another £3 billion over the next few years - will be done without the guarantee.

Executives say that Network Rail's finances have recovered to the extent that it can now undertake its own borrowing. The company is forecast to produce a pre-tax surplus this financial year of about £1.3 billion.

"When we took over Railtrack four years ago we took on a company that had gone bust," a spokesman said. "We have since made dramatic improvements. We have been reviewing our finances and think the time is right to take a step forward."

The announcement is likely to lead to speculation that Network Rail could eventually be floated, recreating Railtrack. But the company is expected to categorically rule out the issue of shares, saying it is commited to retaining its present status.

Network Rail's management, led by chairman Ian McAllister, chief executive John Armitt and deputy chief executive Iain Coucher, is generally regarded as having made a good fist of improving train services.

Punctuality is now running at a six-year high, with 86.4% of trains reported on time.

Meanwhile, GNER, the train company that runs intercity services along the east coast between London and Scotland, is understood to be considering a round of job cuts after losing a crucial court case and parting company with its chief executive, Christopher Garnett. The cuts are expected as part of a cost-cutting programme likely to be instigated by Bob MacKenzie, chief executive of Sea Containers, GNER’s owner.

MacKenzie took over as the executive chairman of GNER last week after the departure of the long-serving Garnett.

Sea Containers declined to comment on reports that it planned to sell GNER, but said it would provide an update on the company’s financial position within the next few weeks.

See also:

Off the leash

The Sunday Times - Business: July 30, 2006

WE Britons have an unhealthy fascination with the railways, a mix of pride at having invented them and loathing at how badly we sometimes run them.

Those with anorak tendencies should watch this week for what on the surface will look like an innocuous announcement from Network Rail, but is in reality a big shift in the development of the railways, a decisive move away from government involvement to private-sector control.

Network Rail will say that it is now big enough and ugly enough to borrow money on its own. Since it took over Railtrack, which collapsed into administration five years ago, it has had to rely on a government guarantee to underwrite its borrowings. The guarantee is highly unusual - ministers are not normally in the habit of guaranteeing the debts of private companies - but it was necessary.

After the government pulled the plug on Railtrack, the money markets were understandably highly nervous about lending money to the railways, and Network Rail, an odd third-way creation of a private company without shareholders, was never going to be able to raise the billions needed on its own.

But now the company has a track record (no pun intended), and profits. Punctuality and reliability of train services has improved, and in this financial year Network Rail should make a pre-tax surplus of about £1.3 billion. That should be enough for it to tear up the government guarantee and go out and borrow off its own bat.

It’s an interesting development, and one with far- reaching ramifications. It will take pressure off Gordon Brown, who had been criticised for not including the £18 billion raised to date by Network Rail in government borrowings.

And it raises the prospect of much greater private-sector control of the railways, and even - although the idea will be anathema to many - the prospect of Network Rail one day being turned into a real private company with shareholders. In other words, a Railtrack reborn.

See also:

Network Rail to end government debt guarantee

Reuters: Jul 30, 2006

LONDON - Network Rail, which owns Britain's rail infrastructure, is set to borrow money without a government guarantee for the first time, the Sunday Times reported.

The paper said Network Rail was likely to raise 3 billion pounds over the next few years without a government guarantee.

Network Rail would not comment specifically on the report, but a spokesman said it had been examining options with its adviser, UBS, and was set to make a statement in the next few days.

Network Rail, set up in 2002 to replace the failed Railtrack, is a company limited by guarantee. Unlike an ordinary company, it does not have shareholders and does not pay dividends, though it is run as a commercial operation.

It is trying to turn around the country's rail system, which has a troubled history of accidents, escalating costs and delays.

To that end, it has issued around 18 billion pounds of debt that effectively carries a government guarantee but is not counted as government debt.

On April 4, Network Rail said it planned to spend 2.7 billion pounds in the next three years, including 400 million pounds of new money after beating targets to reduce delays.

Network Rail also said at the time it planned to raise between 3 billion and 5 billion pounds over the next three years through a combination of public and private bonds to refinance existing debt