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Railhub Archive
2001-07-19 SEC-001
Sea Containers


British government defers award of new 20 year GNER franchise and indicates its intention to negotiate two year extension to existing GNER franchise to expire in 2005

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Sea Containers

British government defers award of new 20 year GNER franchise and indicates its intention to negotiate two year extension to existing GNER franchise to expire in 2005

19 July 2001
source Sea Containers
type Press release

Hamilton, Bermuda, July 19, 2001. Sea Containers Ltd. said today it had been contacted by the U.K. Strategic Rail Authority (the SRA) yesterday and was told that the process to award a new 20 year franchise for the operator of intercity services on the East Coast Main Line had been terminated, and it now wants instead to negotiate an extension of the existing franchise with GNER for an additional two years. Such extension is permitted without a tender process and merely requires that the government is satisfied as to the level of services to be provided in the extension period and that the cost will be good value for the taxpayer. No subsidy would be payable in the extension period as the GNER franchise will be profitable without subsidy, so the financial terms will be based on the payments GNER will make to the SRA during the extension period.

GNER has been informed that the SRA will most likely seek half hourly services on the London/Leeds route from 2003, early refurbishment of the Intercity 225 fleet, increase of customer satisfaction and safety precautions, station upgrades and more spare locomotives to increase reliability.

GNER believes it is important to order new rolling stock now to avoid overcrowding and reduce journey times. One of the reasons it has pressed for a long new franchise is to permit this new rolling stock to be financed as the financial institutions require guaranteed long term usage contracts. It has always been within the power of the government to provide 'backstop' guarantees to rolling stock owners/financiers in event a franchise is terminated but up until now it has refused to use these powers. It is understood that the government will now review this policy.

Mr. James B. Sherwood, President, said that the government's decision did not come as a complete surprise. The Hatfield rail accident in October, 2000 revealed that the track provider, Railtrack, had let the entire rail network deteriorate to an unacceptable level, presumably in its attempt to increase profitability. Railtrack has incurred a massive cost in restoring the network to acceptable standard, including payments to the train operators for lost revenue. Railtrack is now in a position where it can neither easily raise new equity nor sell bonds so its ability to fund improvements to the network is in doubt. In addition, the improvements made or in progress have come at huge cost overruns, raising questions about the justification for some of the projects and the contracting process. Questions have been raised as to whether Railtrack can even fund existing maintenance. Clearly, the future role and funding of Railtrack requires new definition and until that is done it is probably unwise to award long term franchises.

Mr. Sherwood said Sea Containers had recommended at the time of rail privatization that the track, signalling and station infrastructure be given to the six main regional intercity operators who would then provide access to the network by other operators under supervision of the Rail Regulator. He said that in light of the ramifications of the Hatfield accident this recommendation had been renewed to the SRA. 'We see track, signalling and stations as cost centers and not profit centers. If the infrastructure is in the hands of the main operators they will set priorities and take the most cost effective decisions to ensure the railways are operated to peak efficiency at lowest cost. Freight must be costed on a marginal basis if it is to survive and the freight operators must in return operate their trains outside of peak passenger times. All operators must accept down time of the network for track and signalling repairs and improvements without penalties as today, sharing the own time equitably'. Mr. Sherwood said that Sea Containers would be asking for a fundamental review of these matters in the process leading up to a new franchise award in 2005.

Mr. Sherwood said that considerable cost had been incurred by GNER in its preparation of bids for the 20 year franchise and it would be seeking recovery through credits from the SRA.

'The government has made it clear to us that it is not opposed to the award of a new long term franchise and we will be seeking this once the upgrade of the East Coast Main Line has been properly defined and financed. In the meantime GNER expects to deliver its usual high quality service to its passengers at least to 2005,' he concluded.

Railhub Archive ::: 2001-07-19 SEC-001


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