Royal Mail row delays finance deal
Sharp differences between the Royal Mail and ministers over the postal operator’s business plans have spilt into the open, hampering talks over whether to pour more than Pounds 1bn of public money into the state-owned company.
The Department of Trade and Industry believes Allan Leighton, Royal Mail chairman, needs to produce a firmer, more detailed and more credible business strategy before the government can agree to provide any financing.
It is understood that ministers view an investment case submitted by Royal Mail to support its request for cash or a loan as deficient in a number of areas. These include an overly optimistic assumption for the regulator’s next review of pricing controls in 2010.
There is also uncertainty over the detail of the postal operator’s plan to give employees a stake in the company, a scheme that has been touted by Mr Leighton but which is opposed by the postal workers’ union and many Labour MPs. Ministers have made clear they are still waiting to see a well-argued case that the scheme would boost productivity.
Yesterday, the DTI confirmed there had been “exploratory talks” about the share scheme but added that it had “not received robust or firm proposals on (it) as yet”.
One senior Whitehall insider cast doubt on the credibility of the postal operator’s plans. He said: “You would expect that, as a shareholder, we get submissions from Royal Mail. It’s our job to be sceptical and scrutinise them carefully. Are we still at a stage where we’re asking various questions? Sure. But that’s not hugely surprising.”
However, Royal Mail re-jected the suggestion that its proposals lacked detail and robustness.
“We have submitted a very detailed, well-argued case for investment in the company, which is still with the government,” the company said. “The employee share scheme is an integral part of the case.”
The complex, inter-related negotiations between Royal Mail, its shareholder and its regulator are coming to a head.
The company is due to decide at a board meeting next week on how to respond to the price controls proposed by the regulator Postcomm. It is understood to be awaiting information on some of the small print, but cannot delay a decision for long. The new prices are due to take effect on April 3.
Royal Mail, which has been exposed to full competition in the postal market since January, has signalled it will reject the proposed controls, triggering an automatic referral to the Competition Commission, if the government refuses to grant its request for up to Pounds 2bn of investment.
Ministers remain optimistic the company will accept the new price regime.
Talks are expected to continue on the possibility of a government loan to finance investment or – Royal Mail’s preferred option – of a rights issue-style deal under which the Treasury would inject cash into the company in return for a bigger dividend at some point in the future.
In its response to an MPs’ report on Royal Mail this week the DTI said it remained “interested in non-privatisation options that could increase workers’ involvement. One possibility might be an employee stake”. But unions believe this is looking more remote.
