Funders warn that government payout will undermine claims that PFI transfers risk to private sector.
Bankers have warned that opposition to the PFI will be intensified by the government's decision to give £300m compensation to Railtrack shareholders.

Transport secretary Stephen Byers pledged the money on Monday. He also announced plans to create an organisation called Network Rail to take over the collapsed infrastructure body.

One PFI backer said the move by Byers had set a bad precedent for public–private partnership deals. The backer said bailing out Railtrack shareholders would weaken the government's claim that PPPs transfer risk to the private sector.

He said: "What Byers has done has created more of a problem. Those opposed to PPPs on the grounds that they do not see them transferring enough risk will point to Railtrack as an example.

"They will say as soon as anything goes wrong the government will step in and help the private sector. This will backfire against Byers."

Matthew Webber, director at PFI backer Innisfree, said the Railtrack decision would have an impact on PFIs, but this would be minimal.

Those opposed to PPPs will point to Railtrack as an example

PFI backer

However, he added that if the government was driven by political reasons rather than economic ones, it create a "volatile environment" for PFI projects.

Network Rail, previously known as the Company Limited by Guarantee, is a not-for-profit government-backed body that will take over Railtrack's remit.

The body says that its offer to take over Railtrack will mean that it can lead the group out of administration by the summer.

The body is led by chairman Ian McAllister, deputy chairman Adrian Montague, who was previously deputy chairman of government PFI adviser Partnerships UK, and managing director Iain Coucher, former chief executive at Tube PPP bidder Tube Lines.

A spokesperson for Network Rail said it would eventually have a board of 12, which would be finalised after discussion with the existing Railtrack management, including chairman John Armitt.