Rail sell-off 'likely to open field for managers'

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The Independent Online

News that Resurgence Railways is the surprise first choice to win one of the passenger rail franchises has done nothing to dispel fears that much of the privatised network will simply be sold to its managers.

Unlike Resurgence, almost all the other private companies bidding for the first three rail franchises have been eliminated, leaving the field dominated by management teams.

Like much of the British Rail network that has been sold so far, management buyout teams have been the main winners. Red Star parcels, two of the three rolling stock companies and a catering arm have all been MBOs.

Critics do not question the quality and expertise of the management teams, but ask whether their success indicates a lack of government faith in the privatisation process.

One executive interested in buying a franchise said: "Truly private companies have done well in the tendering process so far. You wonder about the Government's commitment to change the culture of BR."

Such a view was echoed by James Sherwood, chairman of Sea Containers, which has withdrawn from the tendering process after being passed up for one of the first rail franchises.

Failure to bring in new blood to run the franchises would hinder the need for new investment in the railways, he told the Independent. "The Government really only wants the network to be managed for the primary benefit of Railtrack and the rolling stock companies, which are being sold off to private investors."

Mr Sherwood had been adamant that the rail franchises, which the regulator said should run for seven years, could only operate economically if that timescale was lengthened to about 12 years to justify the necessary capital investment.

But it appears that the authorities are prepared to be flexible in their attempt to get the franchise holders to invest in the railways. It is understood that the management buyout team bidding for the London, Tilbury and Southend railway will be allowed a 15-year franchise.

The LTS team, which fought off three private sector bidders and is the sole remaining candidate, argued that a 15-year term was needed for the necessary purchase of an entire fleet of new trains.

The team, led by its director Chris Kinchin-Smith, fought off a group of local bus companies, GB Railways, a consortium led by Canadians Max Steinhopf and Michael Shabers, and Stagecoach.

Private companies are worried that the inside knowledge of the management teams means outside bidders have a slim chance of successfully competing against them.

An exception is Resurgence Railways, a private company that is favourite to win the franchise for Great Western Railway, which runs InterCity services from London's Paddington.

The likely bidder for the third franchise is a management team in partnership with a subsidiary of Generale des Eaux, the French water company. They will fight it out with National Express, the bus group. Sea Containers and Stagecoach had also bid. These first three franchises are due to be allocated by the end of the year.