GNER takes east coast battle to Brussels

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The embattled rail operator GNER lodged a formal complaint with the European Commission yesterday, claiming the Rail Regulator had breached state aid rules by granting a rival train company access to the East Coast Mainline.

GNER, part of the collapsed transport group Sea Containers, is seeking to renegotiate its £1.3bn franchise to run the flagship route between London and Scotland. It claims the charging regime will result in the franchise losing up to £9.7m a year.

The company said the charges were "unfair" because while it had to pay the franchise fee in addition to fixed and variable track access charges, competing "open access" operators such as Grand Central had to pay only the variable fees.

But the move was described as "an act of desperation" by the former Rail Regulator Tom Winsor last night. Mr Winsor is now a lawyer with White & Case, representing Grand Central, which plans to run high-speed trains between Sunderland and London through York. A third company, Hull trains, operates services between London and Hull.

A GNER spokesman said: "They only have to pay variable costs, but because their [Grand Central's] trains will go through York and run in front of ours, they are entitled to a cut of the revenue from all the tickets sold between York and London.

"We run 61 trains, they will only run three, so you can see who wins out of this. If we had thought it was economic to run between Sunderland and London we would have. It only works for them because of the charging regime."

Janet Huck, GNER's legal director, added: "Competition should be on a level playing field. The current regime is unfair and will place franchise operators at a competitive disadvantage."

GNER took the Rail Regulator to a judicial review in July but was defeated. Mr Winsor said: "The state aid arguments were fully argued before the High Court in July and they lost. GNER could have applied to the Court of Appeal but they didn't.

"They say they are in favour of competition. This is fair competition and the fact is this was fully sorted out in July when the High Court reviewed my decision as the former rail regulator. It is only state aid if money changed hands."

GNER, which shocked rivals by bidding £300m more than them for the flagship franchise, has suffered badly as revenues have undershot targets and costs have massively exceeded forecasts.

The company's parent, Sea Containers, has filed for Chapter 11 bankruptcy protection in the US. GNER is not among the affected subsidiaries but the company has admitted jobs will have to go to help combat the shortfall in earnings and excess costs. Unions have attacked the decision, blaming GNER's "unrealistic" bid to retain the franchise.

A spokeswoman from the Department for Transport said: "This will be a matter for the European Court."