Talks on sale of Merseyrail network hit the buffers

Talks aimed at "privatising" more than £100m-worth of rail assets, in North-west England, have collapsed after negotiators from both sides stormed out of a critical meeting.

The infrastructure organisation Network Rail confirmed yesterday that negotiations had "broken down", although Merseyrail, owned by the support services group Serco and the Dutch company Nedrail, insisted they were "still in communication".

Merseyrail, which operates trains in a large area of North-west England, wants to take over responsibility for track and signalling from Network Rail. Industry sources said the discussions ended with senior executives from both sides "banging tables and shouting".

The sources said the acrimony was partly caused by Merseyrail demanding a "dowry" for relieving the infrastructure company of its assets, which include 75 miles of track, 67 stations, tunnels, signalling and buildings. The source said: "Network Rail thought that was utterly out of the question. It was the moment they thought that Merseyrail were not serious any more."

If the agreement had gone through, some rail insiders thought it could be the model for "vertical integration" in other conurbations. However, the RMT rail union had threatened strike action over the proposal because it amounted to "re-privatisation" of rail maintenance which had only recently been taken back in-house by the state-backed Network Rail.

It is understood that Network Rail believes that during 18 months of talks Merseyrail has failed to set out a viable business case for transferring the assets. The infrastructure company has pointed out that Merseyrail's costs would be higher because it could not enjoy the economies of scale available to a company responsible for the whole of the national rail system. Network Rail also believes that Merseyrail has yet to demonstrate it could operate the network more efficiently.

It is thought that Merseyrail is appealing above the heads of Network Rail to the Secretary of State for Transport, Alistair Darling, who is "sympathetic" to vertical integration in the Mersey area.

Bob Crow, the RMT union general secretary, said: "If true this is good news for our members, good news for the railways and good news for the travelling public. We warned that this was a flawed plan that would mean further fragmentation of our railways, would pose a serious threat to the safety, and would [in effect] tear up our members' national promotion and transfer agreement.

Neil Scales, the chief executive of Merseytravel, which has awarded a 25-year franchise to Merseyrail Electrics, insisted negotiations would continue.