Few takers for rail sell-off
Monday 23 October 1995
In a poor omen for the eventual sale of Railtrack next year, two important elements of the rail privatisation process have attracted far fewer firm bids than expected.
The Government intends to press ahead with the privatisation of Railtrack next spring, in spite of considerable opposition. Other parts of the railway network have already been put up for sale.
The sale of the three rolling stock companies, which now own all of BR's trains and locomotives, has attracted only two outside bidders in addition to the three management buy-out teams. And there have been so few bidders for the three heavy-haul freight companies the Government is encouraging joint bids for all three.
Among outsiders, only two - a consortium involving Nomura and US broking organisation Babcock & Brown , and the US company GE - have expressed interest in buying the rolling stock companies, which are estimated to be worth around pounds 500m each. Both groups have bid for all three companies. But it is thought GE may be on the point of withdrawing its offer, which does not comply fully with the seller's requirements.
The formal bids were posted with Hambros, the Government's adviser on the sale,at the end of September. Sources close to the sale claimed that there was still a possibility of persuading GE to continue with its offer.
Industry sources said the formal interest in the rolling stock companies was disappointing given the wide spread of interest at the earlier bidding stage, with 41 companies seeking information on the sale.
The rolling stock companies were all given eight or 10-year leases to the train operators and the income stream is therefore predictable, with 80 per cent of it underwritten by the Government, which hopes to raise as much as pounds 1.5bn from the sale.
The three freight companies, which were created out of BR's Trainload Freight, are all profitable and also attracted widespread interest initially. However, again, apart from the management buy-out teams, only two outside companies, both from the US, have expressed an interest in buying them. One, Wisconsin Central, is bidding for all three and has made it clear that it wants to reunite them into one company. It feels the enforced fragmentation is uncompetitive given that railfreight only has a 7 per cent share of the market and faces stiff competition from road. Transport ministers now appear to regret having split up the three and have advised the management buy-out teams to put in joint bids.
However, this worries railfreight users. Julia Clarke of the Railfreight Users Group said: "Having a monopoly would not benefit many railfreight users, particularly those, like steel and aggregates companies, which are quite heavy users of rail, for whom road is not a very viable alternative."
Meanwhile, the Transport Department is drawing up a new flexible scheme to franchise out the West Coast main line, which was dropped from the privatisation programme in the summer because of uncertainty over the pounds 1bn cost of upgrading the line.
The Government is planning to offer bidders a choice both of the level of investment in the line and the type of new rolling stock. Bidders would not have to pay any of the capital investment, but those opting for a more sophisticated solution would pay higher track access charges to Railtrack, the owner of the lines. They would also pay more to the rolling stock leasing companies for the trains.
The options would range from state-of-the-art track and ultra-fast trains to a cheaper upgrading of the infrastructure for use by rolling stock little faster than British Rail's present high speed trains. Potential operators opting for the more expensive solutions would also be given a much longer franchise period than the present seven years.
Sir George Young, the transport minister, is pressing officials to have the options prepared as early as possible next year. However, it is unlikely that the West Coast line will be put out to franchise before the expected sale of Railtrack in April or May next year.
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