Siemens wants terms of Thameslink trains deal to stay secret

[John Ashworth]

Siemens wants terms of £1.4bn Thameslink trains deal to stay secret

MPs have pushed ministers to reveal the difference between the Siemens offer and that of second-placed bidder Bombardier

Dan Milmo industrial editor
guardian.co.uk, Sunday 1 January 2012 16.53 GMT

German manufacturing group Siemens has urged the government to keep the financial details of its bid for the £1.4bn Thameslink contract under wraps after MPs called for further scrutiny of the auction.

The transport select committee has recommended that the government reveal the financial difference between the Siemens offer, which has secured frontrunner status, and that of second-placed bidder Bombardier.

The Thameslink deal has become a totemic issue for trade unions, local MPs and critics of government procurement policy after Bombardier warned that it will have to lose more than 1,400 jobs at its Derby plant in the wake of the decision.

Steve Scrimshaw, the head of UK rail at Siemens, told the Guardian that revealing the financial calculations behind bids would undermine the company's ability to win contests in the future. Siemens and Bombardier are also going head-to-head for the £1bn Crossrail contract, viewed as vital for Derby facility's future.

"I don't think that it is beneficial to any party that has been involved in a competitive process. Such information is commercially sensitive and highly confidential," said Scrimshaw. In a report last month, the transport select committee also urged the public spending watchdog, the National Audit Office, to scrutinize the deal.

Scrimshaw added that Siemens had taken part in a "fair and transparent" bidding process for the Thameslink contract, which the company expects to finalise this year despite reports that it is struggling to put the financing together. "We are confident that we will close the contracts in early 2012," he said. According to a recent report, concluding the contract for 1,200 carriages on the Thameslink rail route has been held up by a lack of agreement between the Siemens-led consortium and banks. However, Siemens is confident it will secure the credit it needs.

It has been suggested in committee hearings that Siemens' ability to secure cheaper debt, as opposed to the quality of its trains, was the key factor in beating Canadian manufacturer Bombardier to preferred bidder status. In its report last month the transport select committee said: "If the government proceeds to sign a contract with Siemens we recommend that it publish the reasons for favouring Siemens over Bombardier and the difference in the cost of the two bids." Responding to Scrimshaw's comments, the committee's chair, Louise Ellman, said Siemens' concerns were secondary to the public interest.

"There has been so much concern about the award of the contract it would be in the public interest to release the details," said Ellman, adding that voters deserved to know whether Siemens won preferred bidder status for its superior financial heft.

The Thameslink deal will be financed by the Siemens-led consortium, which will put equity into a specially created business and then raise the debt to build the trains at the Siemens factory near Düsseldorf. In a private finance initiative-style structure, those trains will then be leased back to the train operator on Thameslink, which will pay a regular fee to the consortium that will in turn repay the debt.

Under such a funding scenario, securing debt on good terms is crucial. This has prompted calls from Bombardier that financing should be separated from train design and manufacturing when the government decides the winner of future carriage contracts.

A DfT spokesman said: "We are bound by an agreement with the bidders not to release commercially confidential information."

Last week the government raised hopes for Bombardier's survival in the UK by backing the award of a £188m contract to the Derby plant with an £80m state subsidy. However, observers say the deal to make 130 Electrostar carriages for the Southern rail franchise is not enough to guarantee the Derby plant's long-term future.

Another contract is in the offing after the transport secretary, Justine Greening, said last month that she was "enthusiastic" about awarding the Canadian group £120m contract to build carriages for the CrossCountry franchise. The contract remains in the sidings as Greening did not give the complete go-ahead to the deal.

A £1bn contract for carriages on the Crossrail line, a £15bn project linking Heathrow to Canary Wharf, is vital to Bombardier's long-term survival in the UK.

Bombardier and Siemens are shortlisted for the Crossrail contract, along with Spain's CAF and Hitachi of Japan. Announcing the winner of the contract has been delayed from 2013 to 2014, allowing the bidding guidelines to include recommendations from a government review of public procurement announced in the wake of the Thameslink decision. Government-backed Crossrail said it was keen for the contest to have a "sharper focus on the UK's strategic interest", in a clear hint that it is trying to heed calls for a "level playing field" for UK businesses in the carriage competition.