U-turn brings rail freight back together

The Government has reversed its policy on the privatisation of BR's freight companies by reuniting the three recently separated companies in order to maximise the proceeds from the sale.

Two bidders, which are both seeking to buy all three as a group, have been shortlisted by the Department of Transport, which means that the policy introduced last year of splitting up the profitable part of BR's freight operations to maximise on-rail competition has been abandoned.

The two remaining bidders are First Freight, a consortium of Loadhaul, one of the BR companies, and Omnitrax, a Denver-based rail haulier, and Wisconsin Central, the fast-growing rail freight company that recently bought Res, the operator of the mail trains and the Royal Train and which is also the main owner of New Zealand's rail freight company. The two have beaten off competition from the two other BR freight companies, Mainline, which had the French SNCF as one of its partners, and Transrail, which had introduced an innovative new service linking London with Scotland, but apart from Wisconsin there was very little outside interest in the companies.

Industry observers suggest that the three combined should obtain around pounds 100m for the Government's coffers, considerably more than if they had been sold separately because of the extra competition they would have faced. Julia Clarke of the Railfreight Users' Group said: "The Treasury has always favoured selling the three as a combined deal because they are clearly worth more as one business."

The Government yesterday tried to put a brave face on its U-turn last night. Sir George Young, the Transport Secretary, said: "It was clear from the bids that the market's strong preference is for a combined sale of the three companies."

Sir George confirmed the view of many transport analysts who felt that rail, which now only has a 6 per cent share of the overall freight market, faced such extreme competition from road haulage that there was no need for on-rail competition. He said: "Bidders judge that a unified trainload freight business will be in the best position to increase rail's share of the freight market by offering customers an attractive alternative to road freight."

However, Brian Wilson, Labour's transport spokesman, said: "It cost millions of pounds in lawyers' fees and other costs to create three separate companies and now that has been wasted.

"This is another example of how privatisation is being done on the hoof, with the sole aim of selling assets as quickly as possible."

There was also concern from freight users last night about the reunification of the three companies. Julia Clarke said: "There were signs that the competition between the three freight companies were bringing benefits for users by reducing freight rates. Now that advantage will be lost."

There was also worry that if Wisconsin is allowed to gain control of the rail freight network it will be in a powerful monopoly position.

Keith McNair, director of fuel management at National Power, Britain's largest rail freight user, which has just set up its own rail freight operation, said he had no concerns about the re-formation of one company.

However, he said: "Wisconsin would be in a very strong position if it won control of the BR companies as it already has Res. We would prefer if there were two main competitors on rail."

Under the Government's new regime for freight, the sale of the rail freight companies is likely to be completed early in the new year.

The announcement of the shortlist for rail freight shows that rail privatisation is gathering pace, following this week's announcement of the first three rail passenger franchises and the sale of Res earlier this month.