Government to throw rail market wide open

Exclusive by Carol Millett



The Government wants to wrench open the rail construction and maintenance market to newcomers by allowing train operating companies to set up privately financed consortia to bid for long-term infrastructure contracts in their franchise areas.

The move could see the rail maintenance market, which has so far been the preserve of a chosen few, opened up to a new generation of rail maintenance contractors. And major new lines such as the second stage of the Channel Tunnel Rail Link and the proposal for another East Coast Main Line could be built, financed and operated by privately financed consortia set up by train operating companies (TOCs).

The plan is the brainchild of the shadow Strategic Rail Authority chief Sir Alastair Morton. A sSRA spokeswoman said: "To meet demand, we need a huge amount of investment in the infrastructure. We can't expect Railtrack to do it all. Sir Alastair wants the private sector to come up with its own ideas as to how this can be done, but one way he has suggested is for the TOCs to set up special purpose vehicles (SPVs) which can lever private investment coupled with Government money into infrastructure programmes such as the West Coast Main Line upgrade.

"Railtrack would retain overall management of the network and the TOCs would work in partnership with the civil engineers and financiers to fund and carry out particular works on particular parts of the line. The consortium would recoup its investment through revenue sharing from track access charges."

One leading investment banker told CJ: "It is no secret in the City that Morton has been pushing the idea of expanding the rail network and doing infrastructure and upgrade works through project finance. It has prompted interest and certain design engineers and potential rail operators have been holding talks with financiers as a result of this."

Rail Regulator Tom Winsor is also said to be in favour of Sir Alastair's plan. A spokesman at the Office of the Rail Regulator said: "Tom Winsor has come round to the idea. He was initially concerned with the safety aspects and did not want the network broken up. But his initial concerns are gone and he believes it is possible to involve third parties in infrastructure enhancement without compromising the network's integrity."

Contractors said using SPVs could revolutionise the rail maintenance market.

Kier Group chairman Colin Busby said: "Assuming the safety issues are overcome, then it will transform the market by opening it up to competition, which in turn will bring pricing levels down."

Train operating companies were also positive in their response. A Connex spokesman told CJ: "Needless to say there is a massive amount of infrastructure investment needed. We can't do it on our own. We have to work with Railtrack or another party to bring that about and we have made that clear in our bid for the South Central franchise."

A Railtrack spokeswoman said: "It is difficult to comment on Sir Alastair's proposals until they become clearer. But it would be very difficult to set aside one part of the network for an SPV to work on without compromising safety and efficiency."

One leading rail consultant commented: "The Government has let it be known that it wants to break Railtrack's hold over the network and destroy its ability to use the West Coast Main Line upgrade, the Channel Tunnel Rail Link and the like to blackmail the Government into making concessions. SPVs are a way of loosening Railtrack's grip."

A leading PFI banker concurred with this view. "Railtrack is a reconstructed monopoly and no sensible Government would want to do business with a monopoly."