STAGECOACH’s rail expansion plans appear to be in tatters after the firm was disqualified from bidding for three franchises, one of which was awarded to the firm that operates ScotRail.

Abellio was appointed to run the East Midlands franchise from August in a decision that will raise eyebrows in Scotland.

The performance of ScotRail has come under repeated criticism since the Dutch group took over the 10-year franchise in 2015.

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However, transport secretary Chris Grayling said the Government had agreed a plan with Abellio East Midlands which it expects will result in the firm exceeding the expectations set under a highly demanding and challenging specification for the franchise.

Stagecoach has run the franchise since 2007.

The Perth-based bus and trains group was disqualified from bidding for the new franchise covering the area by the Department for Transport (DfT), which said it had breached the rules of the competition citing concerns about pensions costs.

Stagecoach was also barred from bidding for the new franchise for the West Coast service, which it currently runs with Virgin, and for the South Eastern service it planned to run with Alstom.

Read more: Stagecoach under fire over East Coast losses

Shares in Stagecoach tumbled nine per cent yesterday following news of the decision, which provoked an angry response from Stagecoach.

“We are extremely concerned at both the DfT’s decision and its timing,” said chief executive Martin Griffiths. “The Department has had full knowledge of these bids for a lengthy period and we are seeking an urgent meeting to discuss our significant concerns.”

However, a DfT spokesperson said: “Stagecoach chose to propose significant changes to the commercial terms for the East Midlands, West Coast Partnership and South Eastern contracts, leading to bids which proposed a significantly different deal to the ones on offer.”

The spokesperson said Abellio had presented a strong, compliant bid for the East Midlands franchise, adding: “It is entirely for Stagecoach and their bidding partners to explain why they decided to repeatedly ignore established rules by rejecting the commercial terms on offer.”

The row centres on who should pay the bill for meeting pensions liabilities in respect of rail workers, which the government has shouldered historically.

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Stagecoach said the government appeared to be expecting private sector players to take on the material risks concerned although they could not control or manage them.

Mr Griffiths said: “Forcing rail companies to take these risks could lead to the failure of more rail franchises and cannot be in the best long-term interests of either customers, employees, taxpayers or the investors the railway needs.”

He noted that without ongoing Government support for the long-term funding of railway pensions, The Pensions Regulator had indicated that an additional £5billion to £6bn would be needed to plug the gap in train company pensions.

The rail industry proposed solution would have delivered an additional £500million to £600m into the scheme.

“This would have provided better stability and security for members and much better value for taxpayers,” said Mr Griffiths.

Stagecoach said a full independent value for money review should be undertaken into the issue without delay.

The West Coast trains franchise held by the Virgin Trains joint venture between Stagecoach and Virgin is due to expire in November, but could be extended.

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A Virgin Trains spokesperson said: "We’re very disappointed by the DfT’s unexpected decision. We’ve led the industry for more than twenty years with our ground-breaking innovations, such as automatic delay repay, and award-winning customer service.”

Stagecoach recently highlighted good underlying revenue trends in its rail operations.

It agreed a five-month extension of the East Midlands franchise in February but has faced big challenges in the rail industry in the past.

The Government stripped the trains venture formed by Stagecoach and Virgin of the East Coast franchise last year after performance targets were missed.

The South West franchise passed from Stagecoach to First Group and MTR in 2017.

Stagecoach retains a franchising passport meaning it could bid to run other services.

Shares in the group closed down 12.4p at 120.9p.