The company will have to raise between £6 billion and £8 billion of debt between now and 2006 in order to replace a shortfall in grants from the Strategic Rail Authority (SRA).

A huge securitisation programme, to raise funds by mortgaging future track access revenues, will begin this autumn with the intention of raising an initial £4 billion. That will leave it with a rocketing interest bill that will wipe out any operating profits for the foreseeable future.

Details of the rising debt mountain emerged yesterday as the rail group, which took over stewardship of the UK’s railways from Railtrack in 2002, reported an operating loss of £758 million for the year to March 31. John Armitt, chief executive, said yesterday that the company was confident the fundraising would succeed in what was likely to be one of the largest issues in the debt markets.

Senior executives have spent months courting City analysts and institutions and have already raised about £6.5 billion from international bond markets. Ron Henderson, group finance director, said the company had overcome negative sentiment and misgivings in the City that had arisen from the demise of Railtrack.

Network Rail attributed its operating loss, against an £80 million profit last year, to changes to the timing of grants it receives from the SRA. Reorganising the business, which Network Rail took over when its predecessor Railtrack collapsed in 2001, also drained away more than £150 million, through redundancy costs and the price of taking rail maintenance charges away from external contractors. Network Rail said it had kept total debt below forecasts at

£12.6 billion, by deferring £300 million to £400 million of work on the railways and by clamping down on costs. But debts are still almost £4 billion higher than when the not-for-dividend group took on the running of the rail group from the administrator. Mr Armitt pledged to keep a grip on efficiency and said the decision to bring maintenance operations back in-house would help it to meet a 31 per cent improvement in efficiency. The rail group has already made 600 middle ranking managers redundant and has told staff that 2,000 jobs will go. The group, which now has 22,000 staff, has not ruled out more redundancies.

Network Rail will receive £22.2 billion over five years, up from £16.7 billion under the last five-year regime.

A Network Rail spokesman said the size and timing of the securitisation was yet to be decided. It has to take place this year because Network Rail must raise funds to replace access charge payments from the SRA that are being deferred by two years.

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