An ingenious rescue package unveiled by Britain's Deputy Prime Minister John Prescott on June 3 could see the Channel Tunnel Rail Link completed to London St Pancras by 2007.
Provided the European Commission approves the package by September 30, work will begin in October on the 68 km Phase 1 between the Channel Tunnel and Fawkham Junction. Eurostar trains will then join existing tracks to reach London Waterloo, saving 15min on current schedules from 2003.
The concession awarded to London & Continental Railways in February 1996 still holds, obliging the company to build the 43 km Phase 2 into St Pancras as well. The main difference this time is that the government will guarantee £3·7bn of LCR bonds, in addition to promising some £2bn of public funding. A further £2bn of debt and equity will have to be raised by LCR because the government's contribution will only be paid towards the end of the project.
Railtrack now has a crucial role to play in the new deal. It is committed to buying from LCR a lease until 2086 on Phase 1. It will pay the full construction cost; the Target Cost Estimate (which includes a risk margin) is £1·7bn.
In 2000 the Rail Regulator will determine the access charges paid to Railtrack by franchised passenger train operators from April 2001. Only then will Railtrack decide whether to commit to leasing Phase 2 at a Target Cost Estimate of £2·5bn.
If it does, Phase 2 construction will start in 2001 for completion in 2007. If not, the government believes sufficient financial incentives are in place to enable LCR to find an alternative lessor.
Railtrack will also take responsibility for construction, since it has shouldered most of the risk of a cost over-run. Day-to-day project management will remain with LCR subsidiary Rail Link Engineering, headed by Bechtel.
Railtrack will recoup its investment in CTRL mainly through access charges paid by another LCR subsidiary, Eurostar (UK) Ltd. A June 3 DETR press release states that 'the government will stand behind the payment of CTRL track access charges to Railtrack in the event, and to the extent, that these cannot be met.'
Operational management of the British end of Eurostar is being contracted out until 2010 to a consortium comprising National Express Group, British Airways, SNCF and SNCB. The competitive implications of consortium members being heavily involved in air and coach services between London and the near continent may worry competition authorities, notably DG-IV in Brussels.
The most remarkable aspect of Prescott's deal is acceptance by the Treasury that the risk of the government's £3·7bn guarantee of LCR bonds being called in is less than 20%, so it will not count as public sector borrowing. This guarantee reduces LRC's interest charges by at least £600m. o