Review of passenger rolling stock leasing markets

29 November 2006
ORR/34/06

The Office of Rail Regulation (ORR) today announced that it is minded to refer the passenger rolling stock leasing markets to the Competition Commission (CC) for further investigation. It is now consulting key stakeholders on its findings before taking a final decision whether to make a reference to the Commission.

Chris Bolt, Chairman of ORR, said:

“Passenger Train Operators spend around £1 billion every year on rolling stock leasing. So the performance of the rolling stock market is an essential element of rail’s value for money. 
“We suspect that there are features of these markets which are preventing them from operating competitively and that this warrants further investigation by the Competition Commission.
“Before we make a reference, we expect to meet again with all the key parties to get feedback on the findings of our market study, including our initial thoughts on potential remedies.”

Notes for editors

1. The consultation document Review of passenger rolling stock leasing markets is available from the ORR website at http://www.rail-reg.gov.uk/upload/pdf/308.pdf
2. The consultation will last for three months, closing on 28 February 2007. ORR expects to reach a final decision in April 2007.
3. ORR received a submission from DfT on 28 June 2006 requesting ORR to make a market investigation reference to the Competition Commission under Section 131 of the Enterprise Act 2002.
4. ORR commenced this market study on 7 July 2006. 
5. The ORR timetable and scoping paper is available from the ORR website at http://www.rail-reg.gov.uk/upload/pdf/295.pdf
6. Under section 131 of the Enterprise Act 2002 (EA02), ORR may make a market investigation reference to the CC where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services, prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom.
7. Under section 169 of the EA02, where the ORR is proposing to make a decision on a reference to the CC it must first consult, so far as practicable, any person on whose interests the reference is likely to have a substantial impact. The paper published today sets out our proposed decision and invites comments by 28 February 2007.
8. The three principal passenger rolling stock leasing companies are:
• Porterbrook Leasing Company Limited
• HSBC (Rail) UK Limited
• Angel Trains Limited
9. Based on evidence from key stakeholders during our study, we suspect that there are features of the markets which are preventing, restricting or distorting competition.  The key issue is a lack of liquidity in the market.  This arises from features that are both inherent and as a result of the way in which the franchising process impacts on the market, including:
• Technical and operational characteristics of rolling stock
• Limited availability of a pool of surplus stock of viable existing vehicles;
• The limited incidence of coterminous franchises;
• The switching costs of transferring stock between franchises;
• The specificity of invitations to tender;
• The existence of Government undertakings (under section 54 of the Railways Act);
• The commercial case for introducing new build stock;
• The time limited nature of railway franchises relative to new build lead times;
• Franchise focus on deliverability and security of supply;
• The higher rental cost of short-term leases and uncertainty over the value of call options and the precise circumstances in which they can be exercised;
• Limited new build activity in the absence of Government support; and
• Limited buyer incentives.

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ORR Press Office - 020 7282 2188/2007