Rail sale stumbles at first hurdle

Red Star privatisation pulled at the 11th hour

THE Government's rail privatisation plans were thrown into fresh confusion yesterday when it was revealed that Dr Brian Mawhinney, Secretary of State for Transport, has halted the £20 million sale of Red Star at the last minute.

Red Star, the express parcels business using passenger trains, was scheduled to be sold this week to a private buyer in the first phase of rail privatisation.

But Dr Mawhinney has pulled the sale because of a row over European competition policy. He wants to give the new owner a monopoly of access to passenger trains for the carriage of parcels, but the EU competition rules prevent him from doing so.

Rail industry insiders say the Transport Secretary has privately approached the Competition Commissioner Karel van Miert for a waiver of the strict no-monopoly rules, but it has not yet been granted.

They add that the delay could be many months, and the sale might even be halted altogether if the Government cannot give monopoly guarantees as a "dowry" to prospective buyers.

The Shadow Chancellor Gordon Brown last night condemned the sale cancellation as "a shambles". He is writing to Kenneth Clarke, the Chancellor, to demand how much the Government paid Hill Samuel, the merchant bank handling the sale of Red Star.

"And I want to know who gave the Government the wrong advice on European rules," he said. "This was supposed to be the first privatisation of rail services, and it is in trouble. It is having to be delayed, and it is costing the public millions

of pounds in consultancy fees. How much extra will we have to pay now?"

The Red Star debacle is the second blow to Government privatisation plans within 24 hours. It has been forced to postpone for a week the publication of a prospectus for the sale of its stake in the power generators National Power and PowerGen after an intervention by the electricity industry regulator.

Professor Stephen Littlechild, the regulator, warned that he was monitoring both companies in the wake of recent record prices. His comments have forced the Treasury to put back the publication of the prospectus until next Monday while talks are held with Prof Littlechild.

Labour is completing a study of the costs of rail privatisation, conservatively estimated at £600 million to date with nothing actually sold yet. The Department of Transport yesterday issued a blanket denial of the latest developments but senior sources within British Rail confirmed that the sale had been pulled at the eleventh hour by Dr Mawhinney.

Several firms are thought to have shown interest in buying Red Star, including TNT, DHL and NFC the national freight company, but industry sources said a consortium known as British Bus was the most likely purchaser.

A spokesman for RMT, the main rail union, said: "This is just the latest example of the shambolic state of rail privatisation. It is time the Government admitted it has made a monumental mistake and rethought its whole strategy.

"These developments are deeply unsettling for staff. Morale in the industry could hardly plummet any lower. Nobody seems to know what is going on."

Ministers face more problems on the rail privatisation front. Major-General Lennox Napier, secretary of the Central Transport Users' Committee has told the franchise director Roger Salmon that the planned cutback of sleeper services to Scotland, and the proposed shutdown of Motorail - first disclosed in the Independent on Sunday on 1 January - should be deferred to allow local consultations laid down by statute.

And on Tuesday, Dr Mawhinney is likely to provoke new controversy when he announces minimum train timetables for four routes due to be sold off by the end of this year. He will admit that Gatwick Express, for instance, will be permitted to run only 50 to60 per cent of its present service, while Great Western, the London, Tilbury and Southend and South West trains will be required to run between 80 and 90 per cent of existing services.

Red Star was to have been the first stage of the rail privatisation programme, and its sale has been help up twice before. Additionally, six passenger franchises were due to have been sold by the end of last year, but their privatisation is running a year late. The spate of delays means that the bulk of railway services will still be in public ownership by the general election, and Labour has promised to keep as much of the system in state hands as possible.

The rail union RMT is going before the High Court on 28 February to seek leave for a judicial review of the privatisation of Railtrack, which it says is ultra vires. Railtrack was not specifically mentioned in the 1993 Privatisation Act.