Thank you for your letter of 10 December requesting clarification of issues relating to the Wales & Borders franchise.

The four short-listed bidders have been invited to Cost baseline proposals reflecting existing services with minor variations, as well as various options for:

—  enhanced services (including, for example, Ebbw Vale and station upgrades);

—  changed services (responding to changes by other operators); and

—  services that could be delivered should the level of subsidy for the franchise be reduced.

  Best and Final Offers (BAFOs) are to be submitted by bidders in February 2003. The bids will be evaluated on the basis of value for money, economic benefits and overall credibility. The preferred bidder is expected to be announced in April 2003, wit h the new franchise coming into effect in October 2003. We will continue to engage fully with Welsh Assembly Government throughout this process.

  In accordance with the approach to be taken on future franchises the bidders have been asked to exemplify opti ons for reductions in subsidy of 10 and 20 per cent. This excludes route closures. I should point out that there are existing statutory procedures (Sections 37-40 of the Railways Act 1993, as amended by the Transport Act 2000) in place which would have to be undertaken to close routes and/or stations.

  There is no pre-determined level of funding for the Wales & Borders or any other franchise. The level of funding will depend on what bidders propose and whether proposals offer value for money and affordability withinthe SRA's overall budget.

  The subsidy paid to the current Wales & Borders franchise (which does not include services in North Wales operated by First North Western) amounts to ¥million for the calendar year 2002. The furture level of subsidy will be determined by the competitive bidding process as intimated.

  We have not issued any Press Notices since the one on 1 October which identified the four short-listed companies that had been invited to submit BAFOs for the Wales & Borders franchise. A copy is attached for convenience (not printed). You may also find it helpful to have the attached documents—Note to the Environment, Planning and Transport Committee members of the Welsh Assembly, and Richard Bowker's speech to the RPC Passenger Conference, which covered the general affordability issues (not printed).

13 December 2002.