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East Coast route set for privatisation as railways 'reopen for business' East Coast route set for privatisation as railways 'reopen for business'
(about 2 hours later)
The east coast rail route is to be sped back into private ownership after a prolonged spell in state hands, the government is poised to confirm this week, as ministers set out plans to reboot a franchise system paralysed by the west coast fiasco. The east coast rail route is to be put back into private ownership after a prolonged spell in state hands, the government will confirm this week, as ministers set out plans to restore a franchise system paralysed by the west coast fiasco.
The transport secretary, Patrick McLoughlin, is set to release the logjam by outlining plans totender the London-to-Edinburgh line more than three years after it was nationalised in the wake of another franchising fiasco – when National Express reneged on a £1.4bn contract for the route. McLoughlin's move will stymie Labour's promise to keep east coast publicly owned if it wins the 2015 general election. The transport secretary, Patrick McLoughlin, is to outline plans to seek tenders for the London-Edinburgh service more than three years after it was nationalised after National Express reneged on a £1.4bn contract for the route. McLoughlin's move will stymie Labour's promise to keep the east coast service publicly owned if it wins the 2015 general election.
The decision to accelerate the return of one of Britain's most prestigious rail routes to the private sector is expected to reignite the head-to-head rivalry between Virgin Trains and FirstGroup, who competed for the west coast franchise last year. The decision to accelerate the return of one of Britain's most prestigious rail routes to the private sector is expected to revive the rivalry between Virgin Trains and FirstGroup, which competed for the west coast franchise last year.
That contest ultimately ended in a victory for Virgin after the incumbent successfully challenged the government's decision to award the contract to FirstGroup, forcing the Department for Transport to suspend its entire franchising programme. That contest ended in victory for Virgin after it successfully challenged the government's decision to award the contract to FirstGroup, forcing the Department for Transport to suspend its entire franchising programme.
While allowing Virgin Trains to continue running the west coast route was seen as a legally fraught solution, the operator may now be handed a further extension to run the lucrative service as transport secretary Patrick McLoughlin prioritises the east coast line. While allowing Virgin Trains to continue running the west coast route was seen as a legally fraught solution, the operator may now be handed a further extension to run the lucrative service as McLoughlin prioritises the east coast line.
McLoughlin will spell out detailed plans for letting 10 of the 16 franchises scheduled to expire before May 2015, but whose future was thrown into chaos by the west coast fiasco. McLoughlin will spell out plans for letting 10 of the 16 franchises scheduled to expire before May 2015 but whose future was thrown into chaos by the west coast fiasco.
He will signal that the railways are "reopening for business" in an announcement, expected as early as Tuesday, that sources say will be be an "holistic programme" for the network, sending a clear message to investors of support for privatisation. He will signal that the railways are "reopening for business" in an announcement, expected as early as Tuesday. Sources say there will be a "holistic programme" for the network, sending a clear message to investors of support for privatisation.
The biggest immediate prize will be the east coast service currently run by the state-owned Directly Operate Railways, which has paid more than £600m in premiums and profits into government coffers in the three years to April 2012. The co-owner of Virgin Trains, Sir Richard Branson, has expressed a renewed desire to run the line, for which he has already twice bid and lost. The biggest immediate prize will be the east coast service, currently run by the state-owned Directly Operated Railways, which paid more than £600m in premiums and profits into government coffers in the three years to April 2012. The co-owner of Virgin Trains, Sir Richard Branson, has a renewed desire to run the line, for which he has already twice bid and lost.
FirstGroup already runs franchises that use stations on the route and is certain to compete for the contract.FirstGroup already runs franchises that use stations on the route and is certain to compete for the contract.
National Express, only just recovered from the consequences of the east coast pull-out, has ruled itself out of contention and the participation of European state-backed firms is also in doubt. France's SNCF was massively outbid on west coast last year and its peers may believe that there is better value in other markets. National Express, only just recovered from consequences of the east coast pull-out, has ruled itself out of contention and participation of European state-backed firms is also in doubt. France's SNCF was massively outbid for the west coast service last year and its peers may believe there is better value in other markets.
An ambitious timetable to re-let most of the rail network on long-term franchises during this parliament was thrown into disarray by the west coast row, where the award of the London-to-Glasgow service to FirstGroup was scrapped after Virgin Trains argued successfully that the contest was riddled with errors. An investigation found serious flaws in the DfT's handling of the competition. An ambitious timetable to re-let most of the rail network on long-term franchises during this parliament was thrown into disarray by the west coast row.
The fallout not only left the future of a key rail route unresolved, but raised fundamental questions about the reliability of the franchising system, where the right to operate trains exclusively on specific routes is leased to private sector companies. On the most lucrative routes, such as east coast and west coast, the leases include the payment of significant premiums – or excess profits - to the government. The fallout not only left the future of a key rail route unresolved but also raised fundamental questions about the reliability of the franchising system, where the right to operate trains exclusively on specific routes is leased to private sector companies. On the most lucrative routes, such as east coast and west coast services, the leases include the payment of significant premiums – or excess profits – to the government.
However, government confidence in the system was bolstered by a review published in January by Eurostar chairman Richard Brown, which found that franchising was fit for purpose and that crucial errors were limited to west coast only. Brown proposed in January that the programme be restarted as soon as possible, but that tailored contracts be offered for different types of rail route. However, government confidence in the system was bolstered by a review published in January by Eurostar chairman Richard Brown, which found that franchising was fit for purpose and crucial errors were limited to the west coast only. Brown proposed the programme be restarted as soon as possible, but that contracts be tailored to individual rail routes.
The government may consider more management contracts rather than traditional franchises, which expose the operator to more risk but also have greater earnings potential. Such a deal was signalled in January for the new combined Southern, Thameslink and Great Northern super-franchise, where the winning operator will have to deal with the wholesale redevelopment of London Bridge station by Network Rail. The government may consider management contracts rather than franchises which expose operators to more risk but have greater earning potential. Such a deal was signalled in January for the new combined Southern, Thameslink and Great Northern super-franchise, where the winning operator will have to deal with the redevelopment of London Bridge station by Network Rail.
A similar solution may be offered on the London-to-Swansea Great Western franchise, currently operated by FirstGroup with an extension to 2015 being negotiated, as massive disruption looms from the Crossrail project, resignalling, electrification and the introduction of new high speed InterCity trains. A similar solution may be offered on the London-Swansea Great Western franchise, currently operated by FirstGroup with an extension to 2015 being negotiated, as disruption looms from the Crossrail project, resignalling, electrification and the introduction of high speed InterCity trains.
Richard Brown told the Guardian last week that an early announcement on franchising would be "good news" and said the DfT had been "diligent in following his recommendations"., stressing that it was essential to space out franchise competitions. "Trying to let too many franchises in too short a period is not helpful to the industry - not just the train operators, but leasing companies and manufacturers - and the DfT can't cope." The DfT's interim head of franchising, Pete Wilkinson, appears to have succeeded in getting the troubled department to produce a timetable ahead of schedule, although it is unclear if it has yet decided how to replace the faulty risk modelling led to the collapse of the west coast process. Richard Brown told the Guardian last week that an early announcement on franchising would be "good news" and said the DfT had been "diligent in following his recommendations"., stressing that it was essential to space out franchise competitions. "Trying to let too many franchises in too short a period is not helpful to the industry - not just the train operators, but leasing companies and manufacturers - and the DfT can't cope." The DfT's interim head of franchising, Pete Wilkinson, appears to have succeeded in getting the troubled department to produce a timetable ahead of schedule, although it is unclear if it has yet decided how to replace the faulty risk modelling which led to the collapse of the west coast process.
Clearing the rail franchise backlog will allow the DfT to focus on other looming procurement headaches, notably the £1bn rolling stock contract for CrossrailClearing the rail franchise backlog will allow the DfT to focus on other looming procurement headaches, notably the £1bn rolling stock contract for Crossrail
How the east was won, lost, and won again
1850 The North British Railway, the North Eastern Railway and the Great Northern Railway link up to form a route from London to Edinburgh, which will eventually become known as the East Coast Main Line.
1948 The London and North Eastern Railway is nationalised as part of British Railways.
1996 The InterCity east coast franchise is privatised with GNER as the operator.
2005 After bidding £1.3bn to run the service again, GNER's second franchise contract starts.
2006 GNER is stripped of the franchise after failing to meet payments, exacerbated by the bankruptcy of its parent company, Sea Containers.
2007 Despite GNER's problems, National Express bids even more for the new contract – £1.4bn – and starts a seven-year deal.
2009 National Express admits it cannot afford the payments in the wake of lower-than-expected passenger demand and hands back the keys. A government-owned business, Directly Operated Railways, steps in.