FirstGroup reacted with dismay yesterday to a decision by the Office of Fair Trading to refer its bid for the Scottish rail franchise to the Competition Commission.
The transport company said it would now consider pulling out of the bidding process given the uncertainties and delays that a referral to the Competition Commission involves.
The OFT cited fears that FirstGroup, which already operates bus services in Scottish cities such as Glasgow, would damage competition in passenger transport services if it won the rail franchise. However, the company dismissed the OFT's findings and said the competition watchdog was acting "strangely" to come out with its decision at such a late stage. A preferred bidder is expected to be named in the next two to three months.
The OFT's decision effectively rules FirstGroup out of the bidding because an investigation by the Competition Commission would not be completed before the franchise is awarded by the Strategic Rail Authority in the summer.
The move by the OFT leaves just two bidders in the running for the ScotRail franchise; National Express, the incumbent operator, and Arriva. John Vickers, the chairman of the OFT, said: "Significant concern has been expressed that this merger may reduce consumer choice of passenger transport services in Scotland and lessen competition. The evidence currently available is not sufficient for the OFT to be able confidently to reject that view."
The SRA said it would be disappointed if any of the three bidders for ScotRail were to pull out of the process but said it was up to the bidders themselves to obtain clearance from the competition authorities for their bids.
Moir Lockhead, FirstGroup's chief executive, said: "This is disappointing news not just for us but for passengers too....We believe the evidence we put to the OFT shows that buses and trains operate in complementary markets under separate regulatory regimes. No competition issues arise here."
Mr Lockhead pointed out that its bus services in Glasgow faced competition from rival operators on 60 per cent of its routes.