FirstGroup is pleased to announce that the Department for Transport (DfT) has extended the emergency funding arrangements for the UK rail industry for the next six to 18 months. 
 
New Emergency Recovery Measures Agreements (ERMAs) came into force yesterday for our South Western Railway (SWR), TransPennine Express (TPE), and West Coast Partnership (WCP, comprising HS2 shadow operator and Avanti West Coast) operations. 
 
The ERMAs replace the Emergency Measures Agreements, which were put in place by the DfT in March to provide continuity for rail passengers and the industry during the coronavirus pandemic, and are similar in operation. During the term of the ERMAs, the DfT will continue to waive the revenue, cost and contingent capital risk of the train operating companies (TOCs) and will pay them a fixed management fee. There is also the potential for an additional performance-based fee, based on measures including punctuality, passenger satisfaction and financial performance. The overall fee potential is a maximum of 1.5% of the cost base of each franchise prior to the pandemic. The fixed fee and overall fee potential for each TOC is lower under the new ERMAs compared with the Emergency Measures Agreements, and more heavily weighted to performance delivery. The ERMAs make no material changes to the ring-fenced cash or working capital mechanisms in place for these operations. 
 
The new ERMA for WCP, which commenced operations in December 2019 and was performing well prior to the pandemic, is in place to the end of March 2022. The new SWR and TPE ERMAs are in place to the end of March 2021, with the potential in the case of TPE to be in place until September 2021 in certain circumstances. In addition, all three include options to extend their duration by a further half year at the DfT’s discretion. As announced earlier this month, the Emergency Measures Agreement for Great Western Railway (GWR) has already been extended to at least 26 June 2021.
 
The DfT has also stated it intends to begin discussions with the TOCs to transition to new, directly-awarded contracts for the longer term, which would come into effect at the end of the ERMAs. 
 
To this end, each of the ERMAs requires that by mid-December 2020 the TOC agrees with the DfT whether, and if so, how much parent company support or other payments are required to terminate the pre-existing franchise agreements. If any such termination sums are agreed, they would fall due at the end of the ERMA term, at which point the pre-existing franchise contract would also terminate by agreement. However if the termination sum for a TOC cannot be agreed by mid-December then the DfT has the right to terminate that ERMA early, with the TOC reverting to substantially all of the pre-existing franchise terms, from mid-January 2021. Assuming the termination sums are agreed, the DfT intends to negotiate a new direct award contract under which the TOC will deliver passenger rail services following the end of the ERMA.
 
Commenting on today’s announcement, FirstGroup Chief Executive Matthew Gregory said:

“The Government has extended its funding of the rail industry whilst demand for services remains heavily affected by coronavirus, and we are pleased that the vital nature of rail services to communities and local economies is being recognised. 
 
“Passengers can be confident that public transport is safe and across our rail networks we have increased service levels to provide more capacity as schools restart and many more workplaces and other facilities reopen. We are now operating around 90% of the rail services we were prior to the pandemic. We will continue to bring all our expertise to bear alongside Government and industry partners to deliver the next phase of recovery of the rail network. 
 
“Together with the earlier GWR extension, these agreements reinforce our balance sheet position and provide a potential path for our rail business to move onto a new contractual footing over time, with a more appropriate balance of risk and reward for all parties. We have long advocated for a more sustainable long-term approach to the railway, with passengers at its centre, and we look forward to working constructively with the DfT to make this a reality.”