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InviteTo Stagecoach to be Wgtn. Rail Joint Venture

NEWS RELEASE
June 5, 2002

Regional Council Invites Stagecoach to be Rail Joint Venture Partner

Stagecoach was today invited by the Wellington Regional Council to be its partner in a joint venture to purchase and operate Wellington’s passenger rail services.

“I am very pleased to be able to invite Stagecoach to join us in this joint venture,” said Regional Council Chairperson Margaret Shields. “Stagecoach demonstrated to us that they have a high level of expertise and experience in running passenger rail services. They were also able to point to a track record of investment in their Wellington bus services, and a demonstrated commitment to improving public transport in the Wellington region.”

Margaret Shields said the Council was impressed with the thoroughness of Stagecoach’s proposal and with their plans for the future of passenger rail.

“They certainly put a lot of work into their proposal, and have met all of our criteria for financial, business and operational standards. I was particularly impressed with the emphasis they place on improving customer service, and the thought they have put into how rolling stock can be improved.”

“Choosing the joint-venture partner is an important step forward, but we still have a great deal of work to do before we reach the point of purchasing or running Tranz Metro Wellington. The next step is to sign a “Heads of Agreement” to form a joint-venture company, and then proceed to negotiate with Tranz Rail. Before any decisions are made the Council will have to agree to a purchase price, and then take the proposal to the public for consultation.”

Margaret Shields said that the selection process had been extremely thorough, and had tested each of the applicants against eleven criteria.

“It was a rigorous process, and I would like to place on record the Council’s appreciation of the work done by all the applicants – Connex, Stagecoach and Transdev. The final three applicants had to provide the Council with substantial documentation and evidence of their financial and business activities, as well as go through an interview and reference checking process.”

Margaret Shields said there were a number of key reasons why the Council chose Stagecoach above the other candidates.

 Stagecoach has proposed a realistic and affordable plan for investment in upgrading the passenger rail system.

 Stagecoach has made a strong commitment to the joint-venture model of ownership, and has demonstrated its ability to work co-operatively with public sector bodies in New Zealand, the UK and Hong Kong.

 Stagecoach has a proven record as a rail operator. They run the largest passenger rail operation in the UK – South West Trains – with 1700 trains per day carrying more than 137 million passengers in 2001.

 Stagecoach demonstrated strong financial, business and customer service skills. They have made a commitment to relocating experienced staff from their overseas operations to work on the joint venture.

“Stagecoach has been a trustworthy and reliable operator in Wellington. Importantly, Stagecoach has a strong track record in its New Zealand and overseas operations. Their record gives us confidence that a public – private joint venture will work well.”

“Joint ventures between the public and private sector offer a new way to fund and manage long-term investment in infrastructure. With the Council working for the public interest, and the expertise of Stagecoach running rail services, we believe this is the beginning of a sound future for Wellington’s passenger rail services.”


ENDS


Background Information on Joint Venture Selection Process

Q. Who were the three potential joint-venture partners?

A. There were three potential joint-venture partners – Connex, Transdev and
Stagecoach. A brief description of each company is included at the end of this backgrounder.

Q. Who evaluated the joint-venture applicants?

A. A team of three carried out the evaluation process.

Dr Jane Bradbury, Divisional Manager Environment, was appointed to provide an independent view having had no previous experience of transport issues.

Murray Kennedy, Project Manager Regional Rail, has 20 years railway experience and also business and governance experience.

Greg Schollum, Chief Financial Officer, has financial management, treasury and business experience.

The evaluation team engaged three consultants to assist in specialist areas.

 An experienced railway mechanical engineer to advise on issues relating to rolling stock.
 PricewaterhouseCoopers to advise on specific financial issues.
 Chapman Tripp to advise on legal issues related to governance and documentation.

Q. How were the candidates evaluated?

A. Following an initial evaluation, the three respondents made presentations and
were interviewed. Four WRC representatives and an external rail consultant were at the interviews. All companies were requested to provide some additional information as a result of the interview process. All companies were asked to provide referees.

In addition the applicants were asked to provide extensive information on their operations and finances.

The information from the three respondents was evaluated under 11 criteria, as detailed below.

 Experience in providing urban rail or tram services.
 Experience in working with public/private partnerships.
 Understanding of the WRC’s requirements.
 Rate of return expectations.
 Understanding of the issues specific to delivering public transport.
 Understanding of the issues the JV will face in owning and operating Tranz Metro (Wellington).
 Financial standing.
 Quality of key individuals for governance and management.
 Experience in purchasing a rail passenger business and ongoing track access rights.
 Vision for the future of regional rail passenger transport.
 Demonstration of commitment to the Wellington Region.

Audit New Zealand acted as probity auditor for the selection process. They have certified that the process has been undertaken in a fair and appropriate way.

Q. Are there any issues about competition?

A. Stagecoach approached the Commerce Commission in late 2001 to get a ruling on competition issues. On 10th April 2002 the Commission ruled (Decision 460) that Stagecoach’s participation in a joint venture “would not have, nor would be likely to have the effect of substantially lessening competition in any of the … markets” (operating or provision of bus or rail services).

Q. What are the next steps in the process?

A. The key steps in the process, along with indicative dates, are set out in the following table.

Signing of Heads of Agreement with preferred private sector partner (“Engagement” phase) June 2002 Subject to Council decision to proceed.

Completion of due diligence of Tranz Metro business as a going concern, with assistance from Govt in relation to track access. September 2002 Subject to Council decision to proceed.


Establishment of JV company, in conjunction with private sector partner. September 2002 Subject to Council decision to proceed.
Signing of conditional Sale and Purchase Agreement with Tranz Rail if a satisfactory contract can be concluded. September 2002 Subject to Council decision to proceed.
Consultation with the public based on the conditional Sale and Purchase Agreement signed with Tranz Rail. November 2002 Subject to Council decision to proceed.
Purchase of Tranz Metro (Wellington) from Tranz Rail. March 2003 Subject to Council decision to proceed.

Company Profiles

Connex

A proposal was received under the name of Connex Management Australia Pty Ltd, a wholly owned subsidiary of CGEA Connex SA, which is 100% owned by Vivendi Environment SA. Vivendi Environment is incorporated in France and listed on the New York and Paris Stock Exchanges.

Connex is a substantial transport operator with 230 road and rail services, employing 40,000 staff in 14 countries. Three of the services (Melbourne, London, Stockholm) are suburban rail services, similar to rail services in Wellington. Connex’s Australian activities commenced in 1997 and consist of buses, trams, trains and a monorail, totalling 77M passenger trips a year (c.f. Wellington rail 10M).

Most of the transport operations run by Connex involve partnerships in various forms, although none are identical to the Wellington proposal.

Stagecoach

New Zealand Bus Ltd (NZBL) submitted a proposal under the trading name of Stagecoach. NZBL is a wholly owned subsidiary of Stagecoach Group Plc, a company listed on the London Stock Exchange.

Stagecoach was founded in Scotland in 1980 as a bus company. It is now one of the world’s largest bus and rail groups, with 20,000 vehicles and 40,000 employees operating in several countries. It has four separate heavy rail or tram operations in the UK. The largest of these is South West Trains, centred in London, carrying 137M passengers a year. In NZ terms, South West Trains’ services would be described as urban and provincial. Stagecoach UK also owns 49% of Virgin Rail – a long distance UK train operator. The Sheffield tram service, 100% owned by Stagecoach, is about the same size as the Wellington Urban Rail Services.

TRANSDEV

TRANSDEV Australia Pty Ltd was the third international transport operator to submit a proposal. This company is 75% owned by TRANSDEV SA based in France, and 25% owned by RATP, the Paris urban transport operator who recently bought this stake from TRANSDEV SA. TRANSDEV SA is a wholly owned subsidiary of Caisse des Dépôts and Consignations (CDC), the French National Savings Bank – one of the world’s largest financial institutions. RATP has 40,000 staff and carries a substantial number of passengers a day. TRANSDEV is an experienced tram and bus operator with operations in France, other European countries, the UK and Australia. Yarra Trams (50% TRANSDEV owned) operates one of the Melbourne tram franchises and carries 60M passengers a year. This tram contract was awarded in 1999. Other tram operations include Nantes, Grenoble, Orleans and Strasbourg in France. TRANSDEV also operates many other tramways. It has 14,000 TRANSDEV employees.

ENDS

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