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European Commission allows aid for London & Continental reform

13 May 2009

UK: On May 13 the European Commission approved £5·169bn of 'one time last time' state aid for London & Continental Railways, which will result in the unbundling of High Speed 1 infrastructure and Eurostar's transport operations.

Debt cancellation and a sustainable financial structure will lead to a significant reduction in track access charges, removing a potential barrier to competition.

London & Continental Railways developed High Speed 1, the rail link between London and the Channel Tunnel which opened throughout in November 2007. LCR also owns Eurostar (UK) Ltd, the British arm of the cross-Channel high speed operator.

Seven previous Commission state aid decisions had approved guarantees which were required in order to secure private funds for HS1. This has exposed the UK government to a range of long-term liabilities, resulting in high access charges which have proved to be financially unsustainable and could constitute a barrier to new entrants when the international passenger rail market is liberalised in 2010.

Each of LCR's businesses will now be established on a sustainable commercial and financial basis, bringing the long-term guarantees and liabilities to an end and removing the need for ongoing public support.

The Commission considered that this state aid has two separate aspects.

The first is re-organising the financing of the infrastructure, by assuming all of LCR's debts and removing the various guarantees in return. LCR's infrastructure activities will be consolidated into a single entity, which will be sold. The concession period for HS1 will be significantly shortened, and access charges will be revised and significantly reduced. The Commission verified that this is designed to promote an important project of common European interest, the Channel Tunnel Rail Link, and considered that the financial re-organisation complies with the EC Treaty.

The second aspect is the restructuring of EUKL by recapitalising the company, in particular to allow fleet replacement. All guarantees to EUKL will be removed and relations with the infrastructure activities will be established on a commercial basis at market rate. The Commission found the plan complies with rescue and restructuring guidelines, with compensatory measures in favour of possible competitors, and declared the restructuring compatible with the EC Treaty.

The UK has agreed to discuss a list of independent financial advisers who will assist the Commission in the monitoring of the present decision. The UK has also committed to the 'one time last time' principle preventing the granting of additional restructuring aid in the future.