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Government’s plans for PFI threatens British firm’s Crossrail bid

Public finance initiative could give advantage to Germany’s Siemens over Derby’s Bombardier in contest to build Crossrail carriages

Bombardier’s position as early favourite for the £1bn Crossrail trains contract risks being overshadowed by government plans to fund the deal through a private finance initiative.

Ministers are under pressure to ensure that the contest for the next major rolling stock contract in the UK gives a fighting chance to domestic manufacturers after Siemens of Germany was preferred over Bombardier’s Derby factory for the £1.4bn Thameslink contract.

Crossrail, which is owned by government-funded Transport for London, delayed the train-making contest last week and indicated that a UK-based business would be in a stronger position for the new contract than it was in the case of Thameslink.

However, it is understood that the Department for Transport (DfT) and the Treasury do not want TfL, the London mayor’s transport authority, to fund the deal off its own debt-laden balance sheet and are considering a PFI-type arrangement instead.

The Thameslink deal will be financed by a Siemens-led consortium that will put equity into a specially created business and then raise the debt to build the trains. Those trains will then be leased back to the train operator, which will pay a regular fee to the consortium.

Tony Travers, director of the Greater London Group at the London School of Economics, warned that if the government took the PFI route it could tip the balance in favour of non-UK bidders such as Siemens, despite the recent procurement pledge.

He said: “There is a trade-off here where, on the one hand, you raise public sector borrowing, which slows reduction in the deficit but allows a greater chance of the trains coming from Britain. Or, on the other, you can keep the deal off the government’s balance sheet and make it more likely that a foreign company will win the contract. A large company like Siemens will be able to borrow the money to undertake a project of this kind.”

It is thought that Siemens’s superior financial firepower was a contributing factor in beating Bombardier on the Thameslink deal.

Industry sources believe the PFI arrangement would involve privately raised debt, which would be more expensive than borrowing by TfL, which shares the government’s AAA credit rating. However, TfL’s borrowing already stands at £6.4bn and is constrained by the DfT. Under the terms of its settlement with the DfT in the public spending review, TfL cannot top up its borrowing by more than £1.9bn by 2015. It is understood that the limit would have to be raised further to finance the 60 Crossrail trains directly through public money.

The debate over public borrowing versus a PFI structure has emerged as Bombardier, Siemens and the transport secretary, Philip Hammond, prepare for an appearance at the House of Commons transport select committee on Wednesday. The Thameslink decision has been slammed by trade union leaders and local politicians after Bombardier announced that it was cutting more than 1,400 jobs.

TfL said: “When we undergo any procurement process we always keep under review how we can get the best possible for the farepayer and the taxpayer.” The DfT said: “We always keep under review how we can get the best possible deal for the taxpayer and the farepayer.” © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds