The Sheffield Supertram, Britain's most modern system, is being privatised despite the fact that it has flopped, carrying far fewer passengers than anticipated. The system is owned by the local passenger transport executive which is controlled by four local councils - Sheffield, Barnsley, Rotherham and Doncaster - who fear that council-tax payers will have to fork out huge sums to make up the losses.
The system is technically a great success and was built on time, but it has suffered under fierce competition from buses which have more stops and are much cheaper. Unlike Manchester's new tram system, which incorporated existing rail lines and faces little bus competition, Sheffield's system is largely on the streets and trams are often delayed by the traffic.
The operation has also been criticised for a complex ticketing method, poor marketing and inadequate customer information systems. The trams have largely been running empty, apart from at peak times, while competing buses remain full. The initial target of having 22 million users each year by the turn of the decade is now reckoned to be over-optimistic by a factor of three or four.
While European and government grants provided much of the finance, the councils had to borrow pounds 80m as their share of the cost. The system began operation more than two years ago and was completed last October.
Alex Ritchie, finance director of South Yorkshire Passenger Transport Executive, said: "We are looking to sell either the whole system, or just the operation as a franchise."
Companies bidding for rail franchises, such as Stagecoach and Compagnie Generale des Eaux are expected to be interested in the sale as will the rolling stock companies which now own all the passenger trains. Advertisements asking for expressions of interest have just been published and a preferred bidder could be announced as early as this autumn, with the sale going through in the New Year.
However, there are doubts whether the sale price will be sufficient to pay off the money borrowed by the four councils to build the project and the PTE will be reluctant to sell below that price because it would leave a long-term debt of up to pounds 100m with the councils. If the sale flops, then they may have to fork out money to keep the system operating.
Sheffield's problems are a big blow for supporters of light rail systems and there are worries that plans for other tram networks around Britain will be stymied because of lack of finance.