Image copyright Welsh government Image caption Four firms have been shortlisted for the franchise and the right to create the South Wales Metro

A £1bn funding row is set to delay the new rail franchise process in Wales - with the project "in jeopardy", according to the Welsh Government.

The four firms bidding to run the Wales and Borders network were due to submit tenders on 18 August.

However, the UK Department for Transport (DfT) wants the date moved to 26 September to resolve a funding row.

The Welsh Government wants £1bn plus £3.5m for delays it said were caused because of June's general election.

The bidders - Abellio, Arriva, KeolisAmey and MTR - have been in discussions since June 2016 over the running of the network, including the South Wales Metro project.

But UK Secretary of State for Transport Chris Grayling has threatened to put the whole process on hold.

Russell George, the Conservatives' economy and transport spokesman in the assembly, called the letter "damning".

Image copyright Reuters Image caption Chris Grayling told Ken Skates he could not "cut corners" before he approves the tender stage proceeding

The £1bn requested by the Welsh Government relates to an annual rebate of £67m given by current franchise holder, Arriva Trains Wales, to the DfT.

The rebate, which is linked to track charges, is passed to Network Rail via a grant for improving railways.

However, the rail infrastructure in Wales will remain in UK government hands after the handling of the franchise is devolved to Wales from 2018.

The Welsh Government says this means it will not be able to collect the rebate - which it has calculated to be worth £1bn over the 15-year span of the contract.

In a letter to Welsh Economy Secretary Ken Skates, Mr Grayling said he would only authorise the tender process continuing when agreement is reached on this.

He described it as a "claim which would commit my department to finding an additional £1bn over the franchise term compared with today, and for which I see no basis".

Image copyright AFP

Mr Grayling also said he was "unable to accept" an assertion he attributed to Mr Skates that the "general election caused the process to be behind schedule".

He listed seven outstanding issues, such as the Welsh Government not resolving the future of the valleys lines with Network Rail and services that cross into England.

The secretary of state blamed "cumulative delays in the process over the last few months" and refused to pay the £3.5m in compensation requested.

Saying the tender process will not begin until he is happy all issues were resolved, he added: "The scale of the challenge for all of us is clear."

'Major issue'

A Welsh Government spokesman said Mr Grayling's letter "misrepresents a complex devolution position".

He added: "This approach jeopardises the Welsh Government's ability to award a replacement for the current Wales and Borders franchise, which, if unresolved, will be a major issue for rail users.

"Being willing to subject people to the prospect of continued overcrowding and poor quality rolling stock to resolve a budgetary issue of their own making is no way for the UK government to behave."

The spokesman accused the UK government of having a "cavalier attitude to devolution".

A Department for Transport spokeswoman said: "We remain committed to the principles agreed with the Welsh Government in 2014 to devolve rail powers."

Tory AM Mr George added: "Sadly, it's the commuters which are going to pay the price and they will be extremely worried that the timeline for completing the next franchise seems some distance away."