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U.K. Starts East Rail Tender, Opening Way for Branson Bid

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March 26 (Bloomberg) -- Britain invited bids for the state-controlled East Coast rail line as part of a franchising revamp that opens the way for Richard Branson’s Virgin Trains to seek control of the two main London-Scotland routes.

A tender to run the East Coast track that links the capital with Edinburgh will commence immediately, with the expectation that a new franchisee will start operating in February 2015, the Department for Transport said in a statement today.

Virgin’s London-Glasgow West Coast contract has also been extended through April 2017 to help stagger franchises so that they’re not up for tender at the same point in the economic cycle. That should make it easier for Branson to win the East Coast franchise and expand in an industry he’d threatened to quit after being initially stripped of the West Coast last year.

“The timetable works for us,” Virgin spokesman Jim Rowe said today from the company’s London offices. “We’ll look at the invitation to tender for the East Coast when it comes out, but it’s certainly the kind of railway we’d like to bid for.”

Transport Secretary Patrick McLoughlin announced the East Coast plan as part of a revamp of the bid timetable spanning eight years that will see 12 of 15 rail franchises lengthened through the use of extensions or directly awarded contracts.

Botched Award

The strategy revives a tender process that had ground to a halt after complaints from Virgin triggered a government probe that found the West Coast route had been unfairly awarded to FirstGroup Plc following a botched assessment of the risk attached to a 5.5 billion-pound ($8.4 billion) winning bid.

Virgin was subsequently told it could keep Europe’s busiest mixed-use rail line until November 2015.

As part of the revamp announced today government will also establish a Franchise Advisory Panel, together with a mechanism for considering passenger feedback when awarding contracts.

“In future franchise competitions we are placing passengers in the driving seat by ensuring that their views and satisfaction levels are taken into account when deciding which companies run our railway services,” McLoughlin said.

‘Sustainable’

East Coast has been in the hands of government-appointed Directly Operated Railways Ltd. since 2009, when former operator National Express Group Plc invoked a clause allowing it to withdraw from the contract after revenue fell in the recession.

Stagecoach Group Plc, Branson’s partner in Virgin Trains with a 49 percent stake, said in a statement that extensions to three contracts in which it has a hand, including West Coast, are welcome and should help put franchising back on track.

“We will also consider closely the opportunities in the InterCity East Coast franchise competition,” said Martin Griffiths, the Perth, Scotland-based company’s finance chief.

FirstGroup also hailed publication of the new franchise timetable as an important step, without commenting directly on either the East or West Coast routes.

The staggered tender program will be “more sustainable,” with a maximum of three or four competitions a year, the DfT said. The rethink follows a review led by Eurostar Group Ltd. Chairman Richard Brown, who heads the new franchise panel and who said today he’s “pleased” with measures that will encourage proposals from both existing train companies and new entrants.

‘Wrecking Move’

The RMT union said the re-privatization of East Coast is aimed at preventing the business from becoming a model for a wider nationalization of the industry should the opposition Labour party come to power in 2015.

“This is a politically inspired wrecking move designed to flog off this publicly owned inter-city route before the next election, regardless of the consequences,” General Secretary Bob Crow said in an e-mailed statement.

Maria Eagle, Labour’s spokeswoman on transport issues, said the Conservative-Liberal Democrat coalition government “has learned nothing from the franchising fiasco,” which she reckons may cost taxpayers 100 million pounds.

To help reschedule franchise bids, the DfT said it will immediately exercise options to extend agreements with Southeastern and First Capital Connect by six months.

To contact the reporters on this story: Robert Wall in London at rwall6@bloomberg.net; Chris Jasper in London at cjasper@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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