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Thursday 15 Jul 2004

STATEMENT REGARDING NETWORK RAIL’S FINANCING

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National

The Government has today published a White Paper on the future of the railways which announces that the Strategic Rail Authority is to be wound up and its liabilities transferred to the Secretary of State for Transport.  Network Rail’s commercial borrowings are currently supported by £21.05 bn of standby facilities from the SRA. These facilities will transfer to the Secretary of State along with the SRA’s other liabilities, and become sovereign obligations of the Crown, subject to legislation being passed by Parliament. In a letter to Network Rail, David Rowlands, Permanent Secretary at the Department for Transport, made it clear that until the necessary legislation is implemented, there will be no change in the existing financial support arrangements for either Network Rail or the SRA. These include comfort letters issued by the Secretary of State stating that he would intervene in a timely manner to ensure that adequate funds would be made available to meet any financial obligations incurred by the SRA in support of Network Rail’s financings. The Secretary of State for Transport has also confirmed that the SRA’s contractual obligations will continue to be honoured pending legislation.             Fred Maroudas, Network Rail’s Director of Funding, said that the changes announced by the Secretary of State would not adversely affect Network Rail’s long term financing plans: “We have been working on our debt issuance programme for some time, and have developed a very flexible structure designed to cater for changes to the industry.  We remain on target to put in place our long term debt issuance platform later this year.” - ends - White Paper - 2 Notes to Editors

• Network Rail’s £10bn MTN Programme is conducted through Network Rail MTN Finance PLC, a special purpose vehicle owned by a charitable trust

 

• Network Rail’s £4bn CP Programme is conducted through Network Rail CP Finance PLC, a wholly owned subsidiary of Network Rail Ltd

 

• Detailed below is a letter sent by the Department for Transport to the Chairman (Ian McAllister) of Network Rail:-

  Rail Review White Paper The Government has published today a White Paper, which sets out the conclusions of the review of the rail industry, announced on 19th January 2004.  It outlines a blueprint for the railways, which the Government has worked closely with the industry to develop.  It recognises rail's status as an essential public service, specified by Government and delivered by the private sector, and proposes a streamlined organisation of the rail industry with simple unambiguous lines of responsibility. I want to emphasise in particular the following points from the White Paper which are relevant to Network Rail’s existing creditors and explain more fully the proposals, which will affect positively Network Rail’s existing and future liabilities. 1.                  SRA The SRA will be wound up and its strategic responsibilities and financial obligations will pass to the Secretary of State.  The changes will be implemented through primary legislation, which will transfer all of the SRA’s property, rights and liabilities to the Secretary of State. The Secretary of State is a Minister of the Crown and liabilities incurred by the Secretary of State are liabilities of the Crown. Subject to the matters set out in the Annex to this letter, the financial obligations of the SRA, when transferred to the Secretary of State, will constitute valid, legally binding and direct obligations of the Secretary of State, enforceable in accordance with their terms.  Therefore the SRA’s financial obligations, including its support facilities for Network Rail, will,  following their transfer to the Secretary of State, become sovereign obligations of the Crown and the nature of these obligations will be the same as other contractual obligations of the Crown (e.g. the Guarantee in support of LCR’s Bonds).  Until the necessary legislation is considered by Parliament and Royal Assent is given, there will be no change in the existing financial support arrangements for either Network Rail or the SRA.  The SRA is a non-departmental public body incorporated under the Transport Act 2000.   Although the SRA is not a Crown body, and its liabilities are not Crown liabilities, the Secretary of State has issued comfort letters stating that he would intervene in a timely manner to ensure that adequate funds would be made available to meet any financial obligations incurred by the SRA. Once the enabling legislation is passed, the comfort letters issued by the Secretary of State for Transport with respect to the SRA’s liabilities towards Network Rail’s borrowings will necessarily fall away, since the liabilities will thenceforth be enforceable directly against the Secretary of State. In his statement to Parliament on 19th January this year, the Secretary of State’s made it clear that the SRA’s contractual obligations will be honoured and this is reconfirmed in the White Paper today. White Paper - 3 2.                  Regulation The Government remains fully committed to maintaining strong, effective and independent economic regulation.  There will continue to be a crucial role for the independent economic regulator.  In particular, the regulator retains the full and sole authority to determine the amount of income which Network Rail needs in order to deliver the levels of network capacity and reliability, as will be specified by the Government in the public interest.  3.         Network Rail’s Debt Issuance Programme I am aware that Network Rail is planning to launch its Debt Issuance Programme later this year. It remains our intention that the SRA will provide support for the Programme through a financial indemnity and that the financial indemnity will, like the SRA’s existing support arrangements for Network Rail, be transferred to the Secretary of State for Transport when the SRA is wound up. I am happy for the letter to be made available to your financial stakeholders. Yours sincerely, David Rowlands Annex The matters referred to in Section 1 of the letter are as follows – (1)        in general, expenditure by Crown requires the authority of an appropriation by Parliament in an Appropriation Act.  This long-standing principle would apply to payments which may be made by the Secretary of State to discharge any liabilities that are transferred to him from the SRA. (2)        in proceedings against the Crown before the English courts, the court has no power to grant an injunction or to make an order for specific performance but may instead make an order declaratory of the rights of the parties; (3)        the Crown is immune from all ordinary modes of enforcing a judgement.  Section 25 of the Crown Proceedings Act 1947 provides that, if any order is made against the Crown, the proper officer of the court shall issue to the successful plaintiff a certificate containing particulars of the order.  If the order provides for the payment of money or damages, the certificate shall so state and the Act provides that the Crown must, on being served with the certificate, pay the sum shown to be due.  In the United Kingdom this press release is directed only at persons (a) who have professional experience in matters relating to investments falling within Article 19(1)(a) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (the "Order") and (b) whose ordinary activities involve them in acquiring or disposing of investments (as principal or agent) for the purposes of their business within Article 7(2)(a) of the Public Offers of Securities Regulations 1995 (all such persons together  referred to as "relevant persons"). The investments to which this press release relates are available only to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such investments will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this press release or any of its contents. This press release is not for publication or distribution, directly or indirectly, in or into the United States.  This press release is not an offer of securities for sale into the United States. The securities referred to herein may not be offered or sold in the United States unless they are registered or exempt from registration. There will be no public offer of the securities in the United States. For further information please contact: -  Andrew Lorenz/ Sally Lewis, Financial Dynamics - 020 7831 8113 -  Network Rail press office – 020 7557 8292/3