Wednesday 1 July 2009

National Express Disaster

The too-clever-by-half CEO is gone and now the very existence of National Express is in doubt. Lord Adonis has said this morning that the East Coast mainline franchise is to be nationalised and NE's other franchises are in jeopardy due to contract terms.
A fine mess, here comes the Government to clear up a poor private sector bid. The Government will say they have done nothing wrong; are they right?

I don't think so, by setting up auctions that allow prices to be bid up to high they set themselves up for a fall. Down the line companies won't be able to make the payments so they will fail and the contracts will be handed back.

Think of it like a bank offering you too much on a mortgage, when you fall into negative equity it is the Bank that loses more than yourself. The Government are too obsessed by getting the money in. Not enough due diligence was done on the winning bid, end of story.

We have seen this many times before with the Government, perhaps the 3G mobile auctions being the best example. The UK went from having some huge international dominant operators in O2, Orange and Vodafone to having the first two swallowed up by weak competition as they struggled with the debts they had saddled themselves.

Of course, the companies make the bids and so should be held to account, this is not all the fault of Government. But in desperation for money, both private and public sector are wasting it on a colossal scale instead. More thought by Government could stop this, as could more thought by the private sector.


Hairy Arsed Bloke said...

Ages ago I read a piece that claimed that Gordon Brown’s idiotic 3G auctions where the catalyst for the dotcom crash. Once the analysts had done there do on the cash flow prospects of the telecom companies and found them wanting the whole TMT sector was exposed as a case of the emperor’s clothes. Was this an early case of Guido’s Johan?

Old BE said...

I have just been reading Peston who says that NX can just walk away because they have set the whole thing up at arm's length and have only a puny exposure to the whole thing. How can this be? Where is the accountability for making huge management mistakes?

Personally I think the whole transport sector is wrong. Sell the lot off, reduce the subsidies to zero and let the chips fall where they may.

Martin said...

Oh, so in the case of those idiotic 3G auctions and privatizations, you would rather have the government handing out the assets/licences cheaply to the crony which they like best, rather than everyone having a fair go at them at they price they think it's worth?

And then you will go cry in your soup about all those corrupt companies/government people defrauding the taxpayer?

CityUnslicker said...

HAB - Not quite, the dotcom crash was caused by more. However, once the analysts did do the math, Orange and O2 were hammered and bought by state telecoms in Spain and France.

So yes, early Jonah effect for sure. british companies for foreign taxpayers.

BE - he is a bti wrong, the government can now take off NE its other franchises. This would destory the company hence its shares are losing the most in the FTSE today. transport is a mess, but sadly without subsidy we would have none. Much as this intensely annoys me as a capitalist, we must work with what we have.
The main cause is that we invented trains and tubes etc first; so we have the most archaic infrastructure that needs constant renewal. later deveoping countries learned from our mistakes. On the railways in particular, choosing the wrong gauge has cost us for nearly 2 centuries now!

CityUnslicker said...


Handing out cheap licenes is not the idea. Neither is ruining the market by allowing crazed bids.

In a market with new entrants, some crazy bidders can undermine the whole market with unrealistic pricing. It happens in many sectors, they go bust, but they can take good companies with them.

All I ask is the Government protects taxpayers from this; as in the end we will now pay more, despite the extra income from NE these past years.

due diligence is allowed, I am not at all suggesting letting companies get something for nothing.

Old BE said...

"we would have none"

Nonsense! We might not have expensive inefficient slow trains granted, but who is to say that private investors would not build roads and rail lines? They would cost the user more, but how would that be unfair? A tiny proportion of the country uses the rail network yet everyone is expected to pay for it. And even though they do, the service is shockingly bad.

Do you suppose that the state should be building telephone lines and gas pipes too?

hovis said...

@CE: O/T I know, but good to see that someone recognises that Brunel was right..

CityUnslicker said...

BE - the cheapest thing to do is build roads and airports. That is what we would get; which does not really sort our the problem of getting from a-b for millions of people.
As it happens, we do pay for the gas pipes, as it is regulated in how much the companies are allowed to charge us, same for water. Just a different way of getting the subsidy, albeit not directly from Government.

believe me, I want to see the subsidy reduced, but not at a cost of no integrated transport. Long-term planning is very hard for plc's; why do you think no private company ever thought of building the channel tunnel?

roym said...

i thought private investors did try and build rail/tube lines and almost always lost their shirts.

Anonymous said...

The Channel Tunnel is a build-own-operate-transfer (BOOT) project with a concession.
That means everyone loses.

Old BE said...

The rail companies tended to lose out because the state interfered. Rail companies were not allowed to profit from the opening and development of areas that they facilitated. This was a deliberate act of parliament.

This whole argument pre-supposes that we all "deserve" transportation on some moral level.

If you look at countries which do not have massive public investment in infrastructure what you have is efficient bus services intra- and inter- city.

In this country we have inefficient and expensive systems because the market is distorted by whatever mode is fashionable this decade.

Anonymous said...

BE: No rail company can make money from passenger traffic. They never,ever have. Not even before the motorcar.
Air travel and roads.
Shipping for freight and leisure.

Old BE said...

Anon, I was talking about when the rails were built not today. If the rail companies can't make money now then they should be allowed to fold. I don't see why 100% of the population should pay for a nice little luxury for the elite 5% or so of the population who use them. I suspect that urban commuter rail could work. Please note I am levelling the playing field in my thought experiment by not having any public subsidy of roads and/or car manufacturers.

CityUnslicker said...

BE - The subsidies are mainly required to upgrade the old infrastructure, not for new build. hence the problem. I am all in favour of reducing them, I just think we are left dealing with issues caused by past governments.

Having lived and worked in the US on the West coast with no trains, I would not recommend that as a solution in the any kind of built up areas. In very rural areas of course, things are a bit different.

This is an interesting debate nonetheless. I am going to ruin it though by saying that public transport is much greener than private and so shuold be encouraged if we believe in global warming......;o)

Old BE said...

CU you are assuming that by removing subsidies we will have no public transport at all. I don't agree. There will still be buses, remember that by removing subsidies there would be road tolls as well to even the balance between the cost of running a car and using public transport. West Coast USA is not a fair example because their roads are heavily subsidised (the largest part of the LA public budget!).

It is an interesting debate. Are empty trains really greener than buses or small cars taking the same number of passengers?

Should rural dwellers be subsidising the lifestyle of city dwellers by paying for their expensive metros?

CityUnslicker said...


Surely it is should city dwellers be paying for the empty trains on the poorly used district networks?

The metros and mainlines could probably be run at a marginal profit most of the time.

As for greeness - personally yes. Electic lines can use any type of energy input. buses and cars tend to use diesel or petrol; time will green everything, but at the moment trains are much greener.

Pray tell me of a country that has a good transport system that has all been completed privately?

roym said...

this is off the hook today!

the elite's use trains. that are empty. tried getting a train out to the west country/wales on a friday afternoon? its standing room only past reading!

CU espousing green-ness?

"Rail companies were not allowed to profit from the opening and development of areas that they facilitated."
well at the time werent plenty of people guilty of landbanking, followed by plenty of chicanery to get opposing rail schemes scrapped?

if there were no public subsidy of roads, who would stump up the (5bn+) to widen the M1?

i never drive on the M1 but i can see that its necessary as part of a joined up infrastructure for the country's purposes. taking it to an extreme, rural people would have toll roads that cost hundreds of pounds a time.

dearieme said...

The answer is to freeze the rivers and let us all skate to work.

Old BE said...

if there were no public subsidy of roads, who would stump up the (5bn+) to widen the M1?

How does Vodafone pay to upgrade its telephone infrastructure?

This discussion really shows how little people are prepared to think outside the status quo. Fascintating but depressing.

roym said...

almost as depressing as the rigid dogma that the private sector always does it best and cheapest. which brings us right to the beginning again!

CityUnslicker said...

Vodafone does not require compulsory purchase orders, like for instance the new rail connection to the chunnel.
That is not like for like comparison at all.

This can only be resolved after beers and an arm wrestle BE; so see you next weds!

Anonymous said...

Can't we do anything right anymore?
Suppose the railway could be sold to the Indians, those fine people from Tata or Chinese Rail or SNCF or a far better idea Sir Richard Branston now that's a thought, capitalist dream-world 'my monopoly' Sounds good to me!