UK: FirstGroup and the Department for Transport have reached agreement on payments for the termination of the South Western Railway and West Coast Partnership franchise agreements, which were signed before the pandemic, and are negotiating new directly-awarded management contracts which would come into effect when the current coronavirus Emergency Recovery Measures Agreements end.
ERMAs were put in place by DfT to ensure continuity of services at its franchised operators during the pandemic. The ERMA for South Western Railway runs to the end of March 2021, and that for Avanti West Coast to the end of March 2022. Both can be extended by a further six months at DfT’s discretion.
ERMAs require operators and DfT to agree how much parent company support or other sums would have been be required to terminate the existing franchise agreements had the pandemic not occurred. The amount is based on the financial status of each franchise prior to the pandemic, and DfT’s assessment, acting reasonably, of the potential trajectory for the remainder of the term.
On December 10 FirstGroup said agreement had been reached that no termination sum was required for West Coast, which it operates through the Avanti 70:30 joint venture with Trenitalia UK. The franchise commenced in December 2019 and had been performing well until the pandemic, FirstGroup said.
Termination of the SWR franchise held by a 70:30 joint venture of FirstGroup and MTR Corp will require a further FirstGroup contribution of £33·2m. This represents its share of parent company support and additional commitments under the franchise agreement, less amounts already paid. The agreed sum will be paid at the end of the ERMA.
Parent company support, additional funding commitments and performance bonds, less any monies already paid, are the maximum cash exposure for franchisees, and FirstGroup said agreement on the termination sums had significantly reduced overall financial risk within its First Rail franchise portfolio.
It is now negotiating replacement National Rail Contracts for both operations. DfT has indicated these directly awarded management contracts would run to April 1 2023 for SWR and to April 1 2026 for Avanti, with extensions of up to two further years at DfT’s discretion.
Meanwhile, the process to agree the franchise termination sum for TransPennine Express has been extended to the end of January 2021. The ERMA for this business runs to the end of March 2021, with the potential for it to be extended to September 2021.
FirstGroup’s Great Western Railway is working to a different timescale, as it is operating under an Emergency Measures Agreement that was signed at the same time as the current direct award contract in March 2020. The EMA has already been extended to June 26 2021.
‘New directly awarded management contracts will focus on passengers and operational performance, with a more appropriate balance of risk and reward’, said FirstGroup Chief Executive Matthew Gregory. ‘We look forward to working constructively with DfT to make this a reality, and to use our expertise and understanding of the needs of our customers to deliver improvements that we know passengers want.’
Gregory reported that ‘we are now operating around 90% of the rail services we were prior to the pandemic. We will continue to bring all our experience to bear alongside government and industry partners to deliver the next phase of recovery of the rail network.’
The DfT said the government ‘is committed to ending the complicated franchise system, and moving towards a new, simpler and more effective model that puts passengers back in control’. However, as the ERMA Termination process is ongoing, it could not comment on commercial matters.
