Highest bidder asks why it lost Channel Tunnel rail sale

[John Ashworth]

Highest bidder asks why it lost Channel tunnel rail link sale

• Freedom of Information request for details of £2.1bn auction
• Sources confirm that top High Speed One bid failed to win

* Dan Milmo, Transport correspondent
* guardian.co.uk, Friday 28 January 2011 19.26 GMT

The £2.1bn sale of the High Speed One rail route between St Pancras and the Channel tunnel faces scrutiny after it emerged that the highest bidder did not win the keenly fought auction.

It is understood that a consortium comprised of the insurance group Allianz, the BT Pension Scheme and Canada's Public Sector Pension Investment Board has submitted a Freedom of Information request to learn more details about the process behind the sale. Sources close to the disposal confirmed that the consortium submitted the highest offer ahead of the winner, a rival Canadian grouping of the investment firm Borealis Infrastructure and the Ontario Teachers' Pension Plan.

It is not the first time that a major transport asset has been sold to an under-bidder in recent years, after National Express was awarded the prestigious east coast rail contract in 2007 with a £1.4bn bid despite offering less than a competitor. Even the lower bid proved too optimistic, however, and National Express was forced to relinquish the contract two years later.

A government source said the difference between the HS1 bids was less than 1% and the Borealis consortium was able to complete the deal more quickly, and meet more of terms and conditions related to the acquisition. The winning group secured a 30-year franchise to operate the 68-mile route from London to the Channel tunnel in Folkestone, as well as running the terminus at St Pancras station. Philip Hammond, transport secretary, stressed that the deal did not include the railway's freehold or the land itself.

The Department for Transport said: "All the relevant legal procurement requirements were properly observed and we are confident that the sale was conducted in a fair, open, effective and transparent manner which secured excellent value for the taxpayer."

Meanwhile, attempts to launch a new international service on HS1 are facing opposition from the French government in a row over Channel tunnel safety. Deutsche Bahn (DB), the German state rail operator, is keen to introduce a London-to-Frankfurt service in 2013 but is struggling for clearance because of French concerns over the trains it intends to use.

David Cameron and Angela Merkel, the German chancellor, are understood to have voiced their concerns to the French government. The service would be lucrative for HS1's new owner, with DB predicting that it will boost international travel on the line by 10% by carrying a million passengers a year. A third bidder for HS1 was a five-strong consortium including Eurotunnel, the Channel tunnel operator.

The HS1 sale is one of the most high-profile DfT disposals under a government drive to reduce the fiscal deficit. More controversial auctions are likely to be forthcoming, however, including the sale of a stake in the national air traffic controller, NATS.

The government owns 49% of NATS and the Airline Group, a six-strong consortium including British Airways and easyJet, owns a 42% shareholding. Some members of the airline group want to reduce their stake. The carriers are also urging the government to retain about 25% of the business amid fears that NATS will otherwise not have a strong voice in any future consolidation of European airspace.