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Thursday 4 October 2012

West Coast – After The Storm

[Update at end of post]

The look of disappointment on the face of First Group boss Tim O’Toole was there for all to see: not only had he failed to get his hands on arguably the best train set on the UK’s passenger network, but his firm had also seen almost 20% wiped off its share price in a single day. And that latter statistic is the most telling part of the story, for reasons I discussed yesterday.

A Virgin Pendolino train heading south through Nuneaton

Virgin Rail Group (VRG) had argued that the risk inherent in the First bid – note, not the bid itself – was such that they should be prepared to deposit more than three times the £190 million agreed with the Department for Transport (DfT) which would be effectively in lieu of default, to be forfeited if First had to hand back the keys. The DfT effectively conceded the point by binning the whole process.

Coming out of this shambles are two significant points, most significantly the importance of the InterCity West Coast (ICWC) to both VRG and First, such that its loss impacted so significantly on the latter’s share price. Markets clearly thought that First were getting a rather good deal – maybe too good a deal – which merely underscores the point made by VRG about that deposit.

And second, there has clearly been a measure of antipathy within the DfT towards VRG, built up over the years, and consisting of two elements. First of these was the original contract that VRG signed up to, along with the then Railtrack, which was said at the time to be “Railtrack inviting Virgin to hold a loaded gun to their heads”. Railtrack, it turned out, could not honour their part of that deal.

That contributed to Railtrack being put into administration. Then, rather later, came the renegotiation of the ICWC franchise, where some civil servants formed the impression that VRG had themselves secured too good a deal. This build up of less than totally good will ended up with three of those civil servants being suspended yesterday as the shambles unfolded.

So where does all of that leave the franchising process? Well, right now, it’s all on hold, with the impression being given that, with timescales as they are, VRG will for the time being carry on running ICWC until Government can make its mind up whether to retain the current – and inherently complicated – process, or think again, perhaps moving to a concession system instead.

And what is not helping matters is that Transport Ministers keep on coming and going with such regularity as to make informed oversight next to impossible: blaming Justine Greening for this farce is just plain daft. The ministerial merry-go-round was not so important when it was BR – one nationalised and relatively constant entity – but the ICWC shambles has shown it is not a good idea today.

Also, maybe someone could think of the customers and taxpayers. Just a thought.

[UPDATE 6 October 1045 hours: in a strange coda to this episode, a DfT civil servant called Kate Mingay has waived her anonymity to issue a statement asserting that her role in the process "has been inaccurately portrayed". Ms Mingay is one of the three to be suspended following the abandonment of the ICWC re-franchising process.

She goes on to state that she "did not have lead responsibility for this project", and that neither she nor any of her team had responsibility for the economic or financial modelling part of the project, all of which is very well, but leaves us no more knowledgeable about what went on. Nor does it answer any of the points made in this post or my previous one on the subject.

Ms Mingay also lets it be known, via the well-known tactic of "a source close to" her, that she regards the suspension as "bizarre". Not half as bizarre as her intervention. Suspensions do not occur merely at the whim of civil service management, and what we need right now is some facts, not the backside-covering and excuse generation that is being practised here]

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