EUROPEAN COMMISSION

Brussels, 13.02.2002 C(2002)438fin

Subject: State aid No NN 170/2001 – United Kingdom Aid towards the rescue of Railtrack PLC in Administration

Sir,

Procedure

1. By letter of 28 November 2001 the United Kingdom authorities notified to the Commission certain aid measures, the purpose of which are to rescue Railtrack PLC in Administration and, hence, to ensure the continued safe operation of the Great Britain rail infrastructure. However, the notified aid measures had been put into effect without prior authorisation by the Commission, as required by Article 88.3 of the EC-Treaty. Accordingly, on 28 November 2001, the aid measures were registered as non-notified aid under No NN 170/2001.

2. On 14 December 2001, a meeting was held between the Commission and representatives from the United Kingdom. At this meeting the UK authorities provided the Commission with additional information with regard to the aid in question. Subsequently, by letter of 19 December 2001 and by e-mails of 17, 25, 31 January and 1 February 2002, the Commission received further information from the UK authorities.

3. By letter of 5 February 2002 (registered under No A/52198) the UK authorities submitted, in accordance with paragraph 24 of the Community Guidelines on State aid for rescuing and restructuring firms in difficulty, a request to the Commission for an extension of the notified aid measures.

The Right Hon Jack Straw MP Secretary of State for Foreign and Commonwealth Affairs Downing Street LONDON SW1A 2AL United Kingdom

Rue de la Loi 200, B-1049 Bruxelles/Wetstraat 200, B-1049 Brussel - Belgium Telephone: exchange 32 (0) 2 299.11.11. Telex: COMEU B 21877. Telegraphic address: COMEUR Brussels Description of the aid

General background

4. Railtrack PLC is the owner and operator of the principal national railway network infrastructure in Great Britain. It holds a network license and its main activities are to provide train operating companies with access to track, to maintain and renew the railway infrastructure, to undertake major infrastructure projects and to manage timetabling, train planning and signalling for the rail network. It is a wholly owned subsidiary of Railtrack Group, a private company whose shares are listed on the London Stock Exchange.

5. Railtrack PLC’s financial position had for some time been increasingly unsustainable and the deteriorating financial position was further aggravated by the cost of undertaking a safety review of the rail network through the National Rail Recovery Programme, which was implemented following the Hatfield tragedy in October 2000. In July/August 2001, it become clear that Railtrack PLC was unlikely to have a sufficiently sound financial basis and cash-flow income to enable it to continue properly to carry out its licensed rail activities beyond November 2001 without further substantial public funding.

6. In view of Railtrack PLC’s severe financial difficulties, which could put the future of Great Britain’s rail network at risk, the UK Government decided, on 7 October 2001, to seek an order of the English High Court to place Railtrack PLC under Administration in accordance with Section 60 of the Railways Act 1933, since it considered that Railtrack PLC was (or was likely to become) unable to pay its debts.

The Administration

7. The English High Court of Justice issued, on 7 October 2001, a Railway Administration Order declaring that the business and property of Railtrack PLC be managed by specially appointed railway administrators for the purpose of;

a) the transfer to another company or (as respects different parts of its undertaking) to two or more different companies, as a going concern, of so much of [Railtrack PLC’s] undertaking as it is necessary to transfer in order to ensure that the relevant activities may be properly carried on, and

b) the carrying on of those relevant activities pending the making of the transfer.

8. Accordingly, the Administration process envisages the transfer of Railtrack PLC’s undertaking (including related property, rights and liabilities) as a going concern to a successor company. Following this transfer it is anticipated that Railtrack PLC will be liquidated.

9. The Administrators were appointed by the High Court and are thus officers of the Court with a duty of care to the company over which they are appointed.

2 Their principal function is to manage the relevant activities of Railtrack PLC1 pending the transfer of those activities to another company or companies and hence to ensure the continued and uninterrupted operation of the railway network on a “business as usual” basis. The Administrators have delegated the day-to-day management to the existing management but are entitled to remove them from control if appropriate. Moreover, the Administrators will also carry out an evaluation of Railtrack PLC’s state of business, implement, if necessary, elements of internal restructuring, supervise the preparation of a new business plan and review its ongoing projects and evaluate their likely costs. Finally, the Administrators will in due course, and in the public interest, manage the transfer of the relevant assets and activities of Railtrack PLC to its successor(s).

10. Under the special railway administration regime, the Administrators are required to present, to the Secretary of State, within 3 months after appointement their proposal for the method by which they will manage the transfer of Railtrack’s relevant rail activities to a successor. However, due to the complexity of Railtrack’s business an extension for 3 further months has been requested and approved of by the Court. It is anticipated that further extensions will be made, as the Administrators now expects that their conclusion of a transfer scheme will require up to 12 months.

11. Under English law, appointed administrators receive their remuneration from the assets of the company over which they are appointed. In the case of Railtrack PLC in Administration, the rate of remuneration is fixed in accordance with Article 5 (2) of the Railway Administration Order Rules and is a strictly commercial rate. The Administrators will thus receive remuneration at a rate they would normally charge for their professional services instead of a specific court rate. However, the Administrators must in due course seek the consent of the creditors for their fees and if the creditors agree, then the Administrators will be paid accordingly. If an agreement cannot be reached, the Court may be asked to settle the matter. In any event, the Administrators may not draw their fees until they have been finally determined.

Type of aid and duration

12. The aid measures in question will provide emergency facilities to Railtrack PLC in Administration for an initial period of 6 months, the purpose of which are ensure that the Great Britain railway system continues to function safely pending the transfer of Railtrack PLC out of Administration, i.e. the transfer of Railtrack PLC’s rail business to a successor. These facilities, which will be provided under the Loan Agreement, will enable Railtrack PLC in Administration to maintain existing borrowings and to continue to service trade creditors during the administration period. In addition, the aid measure will provide for an Indemnity to the Administrators.

1 the management and operation of the rail network, i.e. those activities for which Railtrack PLC holds a network license (see further par. 3 above)

3 The Loan Agreement

13. The Loan Agreement provides for two different facilities. The Trust Facility and the Working Capital Facility.

14. The Trust Facility will primarily enable trade and finance debts existing prior to the Administration order to be paid as they fall due and is available for the purpose of:

- paying the trade debts of Railtrack PLC in relation to goods and services provided prior to the Administration as they fall due2,

- making scheduled repayments in respect of existing borrowings,

- discharging bank or interest charges on Railtrack PLC’s existing operating accounts.

15. The Working Capital Facility will be available for the purpose of carrying out Railtrack PLC’s relevant activities in the management of the network, which cannot be funded out of its normal cash flow pending the transfer of some or all of its activities.

16. The Trust Facility and the Working Capital Facility are made available on commercial terms and interest on each advance must be paid at commercial rates. Amongst others, all advances under the Loan Agreement will be subject to a rate of interest that is the aggregate of an applicable Margin and LIBOR3. The Margin is set at 0,6 % and will be subject to review to ensure that it reflects a rate payable by “healthy” corporations attracting a credit rating of single A / A2 (according to Standard & Poor’s Rating Services / Moody’s Investor Services Inc respectively).4

17. The UK Government estimates that the aggregate amount necessary for the period 7 October 2001 - 30 March 2002 will amount to GBP 3 571 million (€ 5 785 million) […].5

18. Facilities made available under the Loan Agreement will be repayable to the Government on the earlier of:

2 Trade debts include, inter alia, salaries due to be paid to employees for services rendered during the pre-administration period and payments due to be made to engineering contractors for the maintenance and enhancement of infrastructure prior to the administration.

3 LIBOR : London Interbank Offered Rate

4 Prior to the determination of the interest rate applied, the UK Government carried out a review of commercial facilities provided in the UK to companies over the last 3-4 years which showed interest rates set at Libor plus margins in the range of 0,6 % - 1 %. Based on that study, the Government decided to apply a rate of the aggregate 12 month Libor plus a margin of 0,6 %, which was deemed as an equivalent interest rate to what is normally applied for commercial facilities in the UK for loans to healthy firms.

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4 - the date of transfer of the property, rights and liabilities of Railtrack PLC in Administration by the Administrators;

- the discharge of the Railway Administration Order, or

- the refinancing of the Facilities in full by commercial bank facilities (see below, par. 17 et seq.)

On the repayment date referred to above, the Government’s commitment to make further advances under the Loan Agreement will be cancelled.

19. Under the Loan Agreement, Railtrack PLC in Administration undertakes to try to procure the refinancing of all outstanding loans made by the Government under the Loan Agreement and also the replacement of any commitment of the Government to make further advances by commercial bank facilities. In case Railtrack PLC in Administration would succeed in procuring such refinancing, the Government will issue a guarantee to cover 100 % of loans made under such commercial facilities and any loan already made by the Government would be repaid when the commercial lender steps in. Consequently, the Loan Agreement allows for the Government loans to be replaced by commercial loans fully guaranteed by the State.

20. It will be for Railtrack PLC and the Administrators to negotiate the terms of any loans to be made with a commercial bank, subject to the approval of the Government since it will issue the guarantee and hence continue to bear essentially all of the risk.

21. The potential guarantees will be provided at exactly the same margin as the loan – the only difference is that Railtrack does not need to pay LIBOR to the Government, as the latter will have no costs for raising the funds. However, since Railtrack, in addition to the payment of the margin to the UK Government will have also to pay to the commercial bank, the guarantee route will be slightly more expensive for Railtrack than direct loans from the Government, which is the cost of the guarantee.

22. In addition, if guarantees are put in place, Railtrack must procure that the Government’s liability under them is released, terminated and discharged of in full on the earlier of:

a) the date of transfer of the property, rights and liabilities of Railtrack by the Administrators, or

b) the discharge of the Railway Administration Order.

Moreover, in order to ensure that the guarantees are in place only to facilitate the Administration, Railtrack PLC must at the same time pay to the Government the amount of any payments that the Government has made under the guarantees.

The Administrators Indemnity

23. In addition, the notified aid measure consists of an Indemnity that has been provided to the Administrators in accordance with section 63.1(b) of the

5 Railways Act 1993. The Indemnity covers two key issues, (i) the Administrators’ fees and (ii) possible claims against the Administrators.

24. The fee element of the Indemnity is largely to allow the Administrators to draw fees monthly rather than wait for the approval process foreseen under the Administration scheme (see above, par. 10). […]* Accordingly, the Indemnity provides that the Government will pay the Administrators’ fees on a time cost basis until such time as the fee is agreed in accordance with applicable rules. At that time the Administrators will pay back from the company assets what they have received from the Government. However, if there is a shortfall because the Court or creditors will not approve of the Administrators fee, or if there are insufficient company assets to pay those fees, the Government will indemnify the Administrators against any shortfall in the costs they are able to recover from the company.

25. The second limb of the Indemnity is to protect the Administrators in the event that they are sued in the course of duty. […]*.

Eligible costs

26. Strict monitoring and control measures have been put in place to ensure that the financing facilities made available is limited to the minimum amount necessary for the purposes of meeting pre-administration trade and finance creditors together with funds for the purpose of operating the railway infrastructure effectively and safely.

27. To this end Railtrack is required to furnish, on a weekly basis, the Government with extensive information and supporting documents regarding, amongst others, payments made and projected expenditure. These weekly reports are checked for arithmetic accuracy and, where possible, actual expenditure verified against previous estimates. The report and request for payments are then passed to senior management in Department for Transport, Local Government and Regions (DTLR) for verification and authorisation prior to payments. In addition to the weekly reports, the Administrators are requested to submit monthly forecasts for Railtrack PLC’s projected costs with regard to both trade and finance creditors and working capital requirements. Moreover, the UK Government has engaged chartered accountants (Arthur Andersen) to act as the Government’s consultants and to provide further independent advice on Railtrack PLC’s projected cash flows and budget forecasting.

Assessment of the aid measure

Existence of aid

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6 28. According to Article 87. 1 of the EC Treaty shall, save as otherwise provided in the Treaty, any aid granted by a Member State or through State resources in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods be incompatible with the common market, insofar it affects trade between member States.

The Loan Agreement

29. The Commission hold the view that, in general, State funding for the construction or management of transport infrastructure is not to be regarded as aid within the meaning of Article 87.1 of the Treaty, if access to the infrastructure is open to all potential users on non-discriminatory terms. However, if the body managing the infrastructure is pursuing an economic activity6, any State grant to that body has to be examined for State aid implications, as the grant may provide a potential competitive advantage to the beneficiary.

30. With regard to the Loan Agreement, the Commission notes that the UK Government will make available up to […]* for Railtrack PLC in Administration, the purpose of which is to enable it to continue to properly carry out its licensed rail activities and, hence to ensure the continued safe operation of the Great Britain rail infrastructure pending the transfer of the company’s undertaking, as a going concern, to a successor company.

31. Railtrack PLC in Administration is the owner and operator of the principal national railway network infrastructure in Great Britain and, as such, responsible for, inter alia, the management, maintenance, and improvement of the railway network. It hence operates in the market for infrastructure builders and managers, a market subject to intra-Community competition7. Moreover, under UK legislation, any undertaking, regardless of its nationality, may apply for a network license in the UK and may thus potentially become a competitor to Railtrack PLC. Accordingly, the aid measure in question distorts or threatens to distort competition and affects trade between Member States.

The Administrators Indemnity

32. The UK Government will provide the Administrators with an Indemnity covering (i) their fees and (ii) possible claims against them in their performance of their duties as administrators. The Administrators are officers of the Court

6 According to established case law, any activity consisting in offering goods or services on a given market constitutes an economic activity, cf. C 35/96, Commission v Italy, ECR 1998, p. 3851 and ECJ judgment of 12.9.2000 in joined cases C 180/98-184/98, Pavlov.

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7 Commission decisions in case N 576/98, Channel Tunnel Rail Link 2, OJ C 56, 26.2.1999 and case N 500/2001, UK Network Grants, OJ C 333, p. 7, 28.11.2001. In addition, the Commission notes that in this particular case, several parties, including parties from Member States other than the UK, have expressed interest in bidding for Railtrack PLC’s undertaking in order to become its successor.

7 carrying out a task in the public interest, i.e. ensure the continued operation of the national rail network in Great Britain pending the transfer, as a going concern, of the current infrastructure manager’s relevant activities to a successor. It is the Commission’s view that, in this function, the Administrators cannot be considered to carry out an economic activity and be considered as an undertaking within the meaning of Article 87.1 of the EC Treaty.

33. In addition, there is no benefit to Railtrack PLC in Administration with regard to the Indemnity. Normally, the administrators will draw their fees from the company over which they have been appointed and the fees element of the Indemnity will only ensure that the Administrators are paid at a commercial rate for their services rendered in case the assets of Railtrack PLC in Administration are insufficient for that purpose. Therefore, Railtrack PLC in Administration will not benefit from the fees element. Moreover, the liability element of the Indemnity does not relate to claims by third party against Railtrack PLC in Administration. […]* and does therefore not benefit Railtrack PLC in Administration. […]*.

34. Consequently, the Commission considers that the Administrators Indemnity does not constitute aid within the meaning of Article 87.1 of the Treaty.

35. In view of the above, the Commission finds that only the Loan Agreement constitutes aid within the meaning of Article 87.1 of the Treaty and is hence, in principle, incompatible unless it may be deemed compatible with the common market by virtue of any of the exemptions provided for in the Treaty or secondary legislation.

Exemption of the aid

36. The Commission notes that the purpose of the notified aid measure is to rescue the business of Railtrack PLC in Administration pending the transfer of its relevant rail activities to a successor and, hence, to ensure the continued safe operation of the Great Britain rail infrastructure network.

37. The Commission has issued Guidelines under Article 87.3 (c) for the assessment of state aid for rescuing and restructuring firms in difficulty8. According to paragraph 20 of these guidelines, the Commission will consider that aid for rescue and restructuring may contribute to the development of an economic activity without adversely affecting trade to an extent contrary to the common interest, within the meaning of Article 87.3 (c) of the Treaty, where the conditions set out in the Guidelines are met. Consequently, the Commission will assess the notified aid in light of Article 87.3 (c) of the Treaty read in conjunction with these Guidelines.

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8 Community Guidelines on state aid for rescuing and restructuring firms in difficulty, OJ C 288 of 9 October 1999, p. 2

8 38. The Guidelines apply only to firms in difficulty, which for the purpose of the Guidelines, are defined as any firm that is “… unable, whether through its own resources or with the funds it is able to obtain from its owners/shareholders or creditors, to stem losses, which, without outside intervention by the public authorities, will almost certainly condemn it to go out of business in the short or medium term.” Moreover, in cases where the company already have become insolvent or is the subject of collective insolvency proceedings brought under domestic law, the guidelines apply to any aid granted in the context of such proceedings which leads to the firm continuing in business. 39. Furthermore, with regard to rescue aid, it is particularly noted in the Guidelines that such aid is a temporary measure, the purpose of which is to keep an ailing firm afloat for the time needed to work out a restructuring or liquidation plan and/or for the length of time the Commission needs to be able to reach a decision on that plan.

40. The Commission recalls that, on 7 October 2001, the English High Court of Justice found, in accordance with the 1986 Insolvency Act and the Railways Act 1993, that Railtrack PLC was unable to (or likely to become unable to) pay its debts and ordered that the company be put under Administration. On the same day the aid measures in question were put into effect. It is further recalled that the purpose of the notified aid is to ensure that Railtrack PLC may continue its business pending the transfer of its relevant rail activities, as a going concern, to another company, i.e. during the Administration process.

41. Accordingly, the Commission considers that Railtrack PLC in Administration is a firm in difficulty and that the notified aid measure constitutes rescue aid within the meaning of the Community Guidelines on state aid for rescuing and restructuring firms in difficulty. Consequently, the aid shall be deemed compatible with the common market if it meets the conditions laid down in these Guidelines.

42. According to paragraph 23 of the Guidelines, rescue aid must meet the following conditions in order to be approved:

- consist of liquidity support in the form of loan guarantees or loans and be granted at an interest rate at least comparable to those observed for loans to healthy firms, and in particular the reference rates adopted by the Commission;

- the loans must be reimbursed over a period of not more than twelve months after the disbursement of the last instalment to the firm;

- be warranted on the grounds of serious social difficulties and have no unduly adverse spillover effect on other Member States;

- be accompanied by a commitment to communicate to the Commission, within 6 months after the rescue aid has been authorised, a restructuring or liquidation plan or proof that the loan has been reimbursed in full and/or that the guarantee has been terminated;

9 - be restricted to the amount needed to keep the firm in business for the period during which the aid is authorised.

43. The aid facilities made available to Railtrack PLC in Administration will take the form of loans (possibly replaced by guarantees). At the outset the loans will be subject to a rate of interest which is the aggregate amount of LIBOR and an applicable margin (+0,6 %). However, the margin will be reviewed to ensure that the interest rate reflects a rate payable by firms attracting a credit rating of single A / A2 (according to Standard & Poor’s Rating Services / Moody’s Investor Services Inc. respectively). In addition, in case the loans are replaced by commercial loans guaranteed by the State, Railtrack PLC in Administration will, in addition to its commercial costs, still have to pay the margin to the UK Government, which will be the cost of the guarantee.

44. The Commission takes note that the UK Government does not apply the reference rates referred to in the Guidelines and that the applied interest rate is instead based on the aggregate of LIBOR one year rate plus a Margin (0,6 %).9 The Commission acknowledges however that LIBOR is the base that is normally used for commercial lenders in the UK when calculating interest rates for loans to companies. Moreover, the Margin is set at a level that is comparable to those that are normally adopted by commercial lenders in the UK for loans to healthy firms (see footnote 4). The Commission, having regard to the reference rates adopted by the Commission, finds that the interest rate applied by the UK Government is a commercial one.

45. The Commission is thus satisfied that the loans and/or guarantees will be provided at a rate comparable to those observed for healthy firms.

46. Moreover, the loans (and possible guarantees) will be reimbursed in full at the earlier of the discharge of the Administration Order or the transfer of Railtrack PLC’s relevant activities. Accordingly, the aid measure will not extend beyond the Administration period and all advances will be repaid within that period. It follows that the loans will be reimbursed within a period of twelwe months from the last instalment to Railtrack PLC in Administration.

47. The Commission takes note of the fact that Railtrack PLC is the sole operator/manager of the UK’s principal railway infrastructure and that there does not exist any other body, which on short notice could substitute Railtrack PLC as the railway infrastructure manager in the UK. Therefore, the Commission is satisfied that the aid is necessary to prevent the imminent collapse of the UK rail sector. Moreover, Railtrack PLC has about 11 000 employees and approximately 39 000 persons are classified as “railway workers” in the UK, whose livelihood are directly dependent on the continued existence and operation of the principal rail network operator. It is also noted that Railtrack PLC has no operations outside the UK and that the aid will thus not result in adverse effects in other Member States.

9 In its Notice on the method for setting the reference and discount rates, the Commission reserves the right, if necessary for examining certain cases, to use a different rate (for example Libor one year rate). OJ C 273 of 9 September 1997

10 48. Consequently, the Commission finds that the aid in question will address and prevent a serious and urgent social difficulty and have no unduly adverse spillover effect in other Member States.

49. Moreover, the UK Government has confirmed that, within 6 months after the aid in question has been authorised, it will submit to the Commission a restructuring or liquidation plan or proof that the loan has been reimbursed in full and/or that the guarantee has been terminated.

50. Furthermore, the Commission is satisfied that the funds made available is limited to the minimum necessary to keep Railtrack PLC in Administration in business pending the transfer, as a going concern, of its relevant activities (rail infrastructure management) as required by the Rail Administration Order. The Commission takes note of the fact that the Trust Facility will provide for loans, the purpose of which are to enable trade and finance debts prior to the administration to be paid. In this respect it is noted that the licensed rail activities of Railtrack PLC are fundamental for the continued operation of rail services in Great Britain. It is thus imperative to maintain essential suppliers and financing relationships during the Administration period so that Railtrack’s relevant rail activities are not impeded during the Administration or compromised for the post-administration period. Therefore, it is the Commission’s view that funds made available for trade debts and repayments of scheduled borrowings prior to the Administration is necessary to ensure the continued operation of Railtrack’s business during and beyond the Administration period.

51. Furthermore, the Commission notes that strict monitoring and control measures have been put in place to ensure that the use of the facilities is properly controlled and that advances are only paid against projected expenditures and forecasts. In this respect, the Commission takes also note of the fact that the UK Government has engaged independent chartered accountants to provide advice to it in relation to projected expenditure and budget forecasts for Railtrack PLC in Administration before any payments are made.

52. In light of the foregoing considerations, the Commission finds that the rescue aid for Railtrack PLC in Administration, for the period 7 October 2001 – 30 March 2002, meets the conditions set out in the Guidelines and may thus be deemed to facilitate the development of an economic activity without adversely affecting trade to an extent contrary to the common interest.

Extension of the aid measure

53. By letter of 5 February 2002, the UK authorities requested, in accordance with paragraph 24 of the Community Guidelines on State aid for rescuing and restructuring firms in difficulty, the Commission for an extension of the notified aid measures and asked for authorisation for the further aid needed for the extended rescue period.

11 54. Initially, the Administration period was expected to last for 6 months and the amount of aid under the aid facilities referred to above was estimated to GBP 3,57 billion (€ 5,78 bn). The Administrators are now more than 4 months into their appointement and it has now, due to the complex and immense business of Railtrack PLC and the complicated process of transferring its relevant rail activities to a successor, become clear that it will not be possible to complete the necessary arrangements and effect the transfer of Railtrack PLC’s business within 6 months of the company being taken into adminstration. […]*.

55. In light of the above, it is now expected that the administration process could last for up to 12 months and the UK Governments is thus requesting that the rescue period may be extended with 6 more months, from 1 April 2002 – 30 September 2002. The UK Government confirms that the underlying arrangements will however not change and will remain the same as for the initial 6 months.

56. The UK Government estimates that it will have to make available further GBP 1 850 million (€ 2 997 million) for the additional six-month period lasting from 1 April 2002 – 30 September 2002 […]*. Accordingly, for the full Administration period, the UK Government intends to make available a total amount of GBP 5,42 billion (€ 8,78 bn) as rescue aid for Railtrack PLC in Administration.

57. Paragraph 24 of the Guidelines provides that rescue aid will initially be authorized for not more than 6 months or, where the Member State concerned has submitted a restructuring plan within that period, until the Commission reaches its decision on the plan. In duly substantiated exceptional circumstances and at the request of the Member State concerned, the Commission may extend the initial six-month period.

58. The Commission recalls that he purpose of the aid measure in question is to maintain the stability of the Great Britain rail infrastructure and to ensure the continued safe operation of it whilst the Administrators and their advisers set up conditions for the transfer of Railtrack PLC’s activities to a new body and the revision of the regulatory environment.

59. Considering the particular business of Railtrack PLC, which essentially is necessary for the provision of rail services throughout the Great Britain, the Commission considers it essential that the UK Government, in order to keep the rail industry operational, may need to provide Railtrack PLC in Administration with further rescue aid while a sustainable long-term option for the ownership and provision of infrastructure services is determined, i.e. during a period equivalent to the Administration.

60. Accordingly, the Commission considers, due to the exceptional and extraordinary circumstances in this particular case, that the initial six-month period for which the UK Government may provide rescue aid to Railtrack PLC in Administration may be extended with 6 more months, i.e. for the the period 1

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12 April 2002 – 30 September 2002 and that up to GBP 1 850 million (€ 2 997 million) may be made available as rescue aid for this period.

Decision

The Commission has accordingly decided: - to consider the aid made available to Railtrack PLC in Administration for the period 7 October 2001 – 31 March 2002 to be compatible with the EC Treaty by virtue of Article 87.3 (c) and not to raise any objection.

- to authorise an extension of the aid scheme to cover also the period 1 April 2002 – 30 September 2002 and to consider the additional amount of up to GBP 1 850 million to be made available during the extended period as rescue aid to be compatible with the EC Treaty and not to raise any objection.

If this letter contains confidential information which should not be disclosed to third parties, please inform the Commission within fifteen working days of the date of receipt. If the Commission does not receive a reasoned request by that deadline, you will be deemed to agree to the disclosure to third parties and to the publication of the full text of the letter in the authentic language on the Internet site: http://europa.eu.int/comm/secretariat_general/sgb/state_aids/. Your request should be sent by registered letter or fax to:

European Commission Directorate-General for Energy & Transport Directorate A B-1049 Brussels Fax No : 0032 (0)2 2964104

Yours faithfully,

For the Commission

Loyola de Palacio Vice-president of the Commission

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