Reproduced from The Telegraph 24 June, 1996

PETE Waterman, pop music producer and train operator, says his fledgling rail business faces collapse because rivals are forming cartels to squeeze him out and maintain high Treasury subsidies.

Mr Waterman says the railway industry is riddled with overcharging practices, something that the taxpayer is likely to be subsidising into the next century.

Criticism that the 25 scheduled train operating companies are forming anti-competitive alliances so soon after British Rail was broken up to encourage competition will concern ministers.

Mr Waterman said one of the 25 train companies tried to charge him £1,000 for the cost of hiring a cleaner to "walk up and down the carriage picking up litter" on a single trip he proposed between London and Carlisle. All other companies operate with subsidies from the Treasury.

The multi-millionaire entrepreneur, who keeps machine guns pinned to his London office wall and produced the pop hits of Kylie Minogue, bought the former InterCity charter train division of BR last year, owning its locomotives and 200 carriages.

He is an enthusiastic supporter of privatisation and believes that, thanks to low access charges to use the line from Railtrack, he can increase substantially the number of passengers using his trains.

However, the occasional nature of charter work, mainly football specials, means that Waterman Railways depends on contracts with the scheduled train companies for staff, garaging and maintenance work.

Mr Waterman was one of the first people from outside the rail industry to take over one of BR's many loss-making divisions. Charter trains were losing £4 million a year in the public sector.

This year, after just 12 months, its new owner expected to break even. He had even found a way of making money from the trains without moving them anywhere.

The Disney Corporation has hired one for station displays to promote its new film, Hunchback of Notre Dame.

He believes the main train companies are deliberately keeping prices high not just to make it impossible for him to make a profit.

However, all that is now under threat. Mr Waterman believes the 25 train operating companies are using the monopoly positions to deliberately overcharge him, leaving him powerless. Under railway regulations, any train embarking on a journey of more than 200 miles must pass the equivalent of a car MoT test each trip. "This involves looking to check that nothing's fallen off. It's not as stupid as that but it is as simple. For that, I'm being charged between £1,750 and £2,000 each time," Mr Waterman said.

"I've been to five train companies and they've all given me quotes, literally, within £50 of each other. I know I could do the same examination for £250. There's obviously collusion.

"We're such a small part of the railway that there's no legislation for us. We can't go to the Rail Regulator to adjudicate because he has no influence over the light maintenance contracts. We're going into battle with no idea how we win. Someone has got to introduce competition into this."

He believes the main train companies are deliberately keeping prices high not just to make it impossible for him to make a profit but also because they do not want to jeopardise their Treasury subsidies and expose the true cost of the work that they carry out.

The overcharging issue raised by Peter Waterman has implications for the calculations made by Roger Salmon, the franchising director, who distributes more than £1.6 billion a year in subsidy to the new train companies.

Ministers will be concerned by any evidence that BR managers effectively hoodwinked him about the real costs of maintenance work and refurbishment.

A spokesman for John Swift, QC, the Rail Regulator, said the office would investigate any evidence of collusion.