Ministers plan rail franchise carve-up amid risk share revamp

 

The Government is considering breaking up the huge franchise that includes Southern rail when it expires and is trying to make new franchises more attractive.

The Times reported that Department of Transport (DfT) officials have told rail industry insiders they want to break up the Govia Thameslink Railway (GTR) franchise, and are considering splitting the Great Western route from London to south Wales.

”Local
The end of the line for Southern franchise?

It said officials also discussed reducing bidders’ risks on franchises at the private meeting held in a London hotel last month, as part of a broader revamp of the sector.

A DfT spokesperson said: ‘In advance of the expiry of a franchise contract the Department considers the size and scale to ensure new train operations best meet passenger needs.

‘As previously announced, the Department is actively looking at the shape and size of the next Thameslink, Southern and Great Northern (TSGN) franchise on expiry of the existing contract in 2021.’

The TSGN franchise operates under a management contract, with revenues accruing to the Government, rather than as a traditional franchise.

However, the Times also said the Government could pay train companies if their revenue from future franchises undershoots forecasts, but would insist on close financial monitoring.

The DfT said it has recently developed an additional risk sharing option for consideration when developing future franchise specifications that allows larger revenue fluctuation risks, for example from wider macroeconomic factors, to be shared between the franchise operator and the department.

It said it continues to review each franchise’s specific circumstances, and the risks it is expected to face, when choosing which risk sharing mechanism is most appropriate.

The DfT is known to be concerned that recent franchises have had as low as two or three bidders – threatening to restrict competition.

Last week Arriva Group withdrew from the bidding process for the next Wales and Borders franchise, leaving three bidders in the hunt.

 

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