Rolling stock leasing: possible remedies and advice to DfT

Competition Commission consultation (9 pages, PDF) on possible remedies that it is considering as part of its market investigation into the leasing of rolling stock to passenger rail franchises in Great Britain.

The reasons for suggesting remedies are outlined in a summary (17 pages, PDF) of the provisional findings report, which is due to be published in full on Friday 8 August 2008.

The suggested remedies are mainly recommendations to Government, including in relation to franchise contracts (longer, less micromanagement), franchise award criteria, pairing of franchises to be coterminous, and more Government financial guarantees.

The only proposed remedy presented as a possible obligation on leasing companies would be a duty to offer short-term leases at the same price as longer-term leases. Even for that remedy, the notice states that this might be implemented by a recommendation to Government to use its call options to secure short-term leases for new franchisees:

42. We are considering a remedy requiring ROSCOs to make available short-term leases at no premium over the current lease rental price or a low premium, for example limited to a demonstrable increment in transaction costs. ... Such measures could be implemented through a price control mechanism specified in an Order. An alternative means to achieve this might be to alter the circumstances in which the DfT may use its ‘call options’ by amending the direct agreements between the ROSCOs and the Government. This will involve a further recommendation to the DfT.

On the possibility of a price control, the notice says:

48. In view of the scope of the detriment that we have identified, the practical difficulties of creating and maintaining a control and the possibility that new distortions would be introduced into this market, we are strongly minded not to pursue a price control remedy but would welcome views, including those to the contrary.

Responses by Friday 12 September 2008.

For further information or advice please contact Franck Latrémolière.

Filed under Competition Commission, DfT, Price controls, Public transport.

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