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Railhub Archive
2006-06-28 DfT-001
Department for Transport


Government seeks action on leasing costs for rail rolling stock

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Department for Transport

Government seeks action on leasing costs for rail rolling stock

28 Jun 2006 00:00
source Department for Transport
type Press release

The Department for Transport today initiated steps for a market investigation into the costs of rail rolling stock leases. It has referred the matter to the Office of Rail Regulation under section 131 of the Enterprise Act 2002.

The Department recognises the important role rolling stock leasing companies have had in investing over 4 billion in new trains and carriages through competitive tender over the last 10 years. However it also has a duty to ensure that best value is achieved for fare payers and Government money.

On the information and analysis available, the Department is not satisfied the prices charged for the rolling stock which leasing companies inherited from British Rail are fair and competitive. It is the Department's contention that there is a lack of effective competition within this market and lack of transparency as to how leasing charges are applied. The grounds for a market investigation into leasing costs are therefore clear.

Each year the rail industry pays over 1 billion to rolling stock operating companies (ROSCOs) to lease trains and carriages. The leases are commercial agreements between private companies. It is important those contracts represent good value as the ultimate cost is borne by the Government or fare payers.

The Office of the Rail Regulator investigated the rolling stock market in 1998. It suggested there should be further consideration after leases for existing trains were renewed. The 'Future of Rail' White Paper, published in July 2004, made clear the Government's view that the competitive market for rolling stock leases had not materialised as expected. The White Paper argued there was a case for looking at how the operation of the market could be improved. To support this, the Department began discussions with rolling stock leasing companies in the Spring of 2005.

Those discussions have progressed but it has become necessary to bring the matter to a firm conclusion. Therefore the Department has asked the Office of Rail Regulation to consider a further referral to the Competition Commission for a market investigation.

This decision has been taken to secure good value for both tax and fare payers.

At the moment the estimated return ROSCOs achieve on the leasing charges for ex British Rail stock is contrary to what would be expected if the market was competitive. The Department argues the excessive leasing charges are the result of a deficiency in the market created by privatisation that should be remedied. A market investigation reference under the Enterprise Act is the appropriate mechanism for dealing with such an issue.

Notes for Editors:

1. The Department for Transport has made a submission to the Office of Rail Regulation asking it to conduct a market study into the rolling stock market. The ORR has the power with the OFT to make a reference to the Competition Commission under section 131 of the Enterprise Act 2002

2. There are approximately 12,500 trains and carriages on lease. Approximately 60% predate privatisation.

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Railhub Archive ::: 2006-06-28 DfT-001


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