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Channel Tunnel Rail Link concession collapses

01 Mar 1998

In an emergency statement to the House of Commons late on January 28, Britain's Deputy Prime Minister, John Prescott, said London & Continental Railways had notified him at 20.00 that it could not finance the Channel Tunnel Rail Link to London.

The day before, LCR had asked for a further £1·2bn of loans to be paid back after the line opened in 2003, cutting 35min off the London - Paris schedule. As LCR had already been promised £1·8bn of public funding once two-thirds of construction was completed, Prescott refused.

The concession awarded two years ago gave LCR 30 days to find some way of taking the project forward. If no solution emerged by February 27, the concession would terminate with Eurostar trains, land and buildings handed to LCR in 1996 reverting to government ownership. Prescott gave an undertaking that 'Eurostar will continue to operate as normal', but the fate of the 108 km high speed line is uncertain.

LCR owns Eurostar (UK) Ltd which operates the service in partnership with SNCF and SNCB. It was the failure of Eurostar to carry 9 million passengers in 1997 - as predicted by LCR back in 1996 - which brought the consortium to its knees. In fact, only 6 million boarded the trains last year.

Although Eurostar assets were transferred debt-free to LCR, the company had to pay a minimum charge of some £80m a year to Eurotunnel until 2006. With SNCF's matching contribution, this absorbed 25% of a £99 standard fare from London to Paris. This was one reason why Eurostar (UK) has lost £260m since LCR took it over in June 1996, whereas the idea of combining the two activities was that Eurostar profits would help fund CTRL construction.

Members of the consortium have put in £100m of equity and this will be lost. LCR also borrowed £420m, but the previous government guaranteed these loans - an arrangement that only came to light last month.

Project management is being undertaken for LCR by Rail Link Engineering, a consortium of four LCR member companies. RLE currently employs 900 people, and states that recent tenders have 'largely confirmed the original estimate of capital cost' (ú2835m at 1995 prices). However, projected Eurostar losses and financing costs meant that LCR would have had to raise some £5·4bn in total. o

  • CAPTION: Construction could be phased, with the section from the Tunnel to the branch for Waterloo built before the costly tunnels into London