Get's

Section A – This ONE question is compulsory and MUST be attempted

1 Introduction

Rudos is a densely populated, industrialised country with an extensive railway network developed in the nineteenth

century. This railway network (totalling 6,000 kilometres), together with the trains that ran on it, was nationalised in

1968 and so became wholly owned by the government. By 2004, RudosRail, the government-owned rail company,

was one of the ten largest employers in the country. However, in that year, the general election was won by the Party

for National Reconstruction (PNR) with a manifesto that promised the privatisation of many of the large

publicly-owned organisations, including RudosRail. The PNR argued that there had been a lack of investment in the

railway under public ownership and that the absence of competition had meant that ticket prices and costs

(particularly labour costs) were too high for the taxpayer to continue subsidising it. The combination of high ticket

prices and large public subsidies was very unpopular. As a result the government split the railway network into eight

sections (or franchises) and invited private sector bids for each of these eight franchises. Each franchise was for ten

years and was for the trains, tracks and infrastructure of each section. Each franchise would be awarded to the highest

bidder.

The East Rudos franchise, one of the eight franchises, was awarded to Great Eastern Trains (GET), a company

specifically set up to bid for the franchise by former members of RudosRail’s management. It was the only independent

company to win a franchise. The other seven franchises were awarded to companies who were subsidiaries of global

transport groups and, initially, were largely financed through investment from the parent companies. In contrast, GET

was primarily financed through loans from the government-owned Bank of Rudos. The ten-year franchise started in

2006. GET is an unquoted company, owned by its management...