THE GOVERNMENT is edging towards a U-turn over its decision to refuse extra public funding for the Channel Tunnel Rail Link, it emerged this week.
Deputy Prime Minister John Prescott had said that London & Continental Railways request for an additional 1.2bn of public money over 10 years was unacceptable. But an LCR director has told a leading corporate finance specialist that the government is now considering backing down.
The senior city source claimed on Tuesday that the government had realised that the cost of cancelling the project or handing it over to another private sector bidder would exceed the amount requested by LCR. He added that John Prescott had been bounced into making a hasty decision by LCRs late meeting with him on the evening of 28 January.
Prescott had to make a statement to the House of Commons because the decision was price sensitive. But Im pretty certain that civil servants had not got to grips with the consequences of refusing more money for LCR, he said.
Treasury officials are now understood to be working around the clock to demonstrate that the LCR proposal is still the lowest cost solution to the tax payer. They are also understood to be seeking a way of making a U-turn politically acceptable to the government.
In a confidential draft National Audit Office report, legal advisers are understood to have warned that the LCR debt for the projects development stage was effectively underwritten by government guarantees.
LCR claims its request for additional funding would have equated to a net present cost of 374M. If the consortium fails the government would be liable for 420M of debt alone.
The government would also have to find an additional 250M to run Eurostar until its predicted break-even date of 2004, with interest charges bringing the total to 900M.
A group of eight council leaders has further estimated that the cost of not building the CTRL, or building a cheaper route to Ebbsfleet would rise to 1.1bn.
The cost of track realigning and safety work at St. Pancras for the Thameslink 2000 and de-contamination of land at Kings Cross and Stratford would add an extra 200M, said Camden leader Richard Arthur.
The Department of the Environment Transport and the Regions admitted only that the cost of taking Eurostar back into the public sector would be in excess of 400M.
The NAO draft report is also understood to point out that government ministers were made aware in the submission from advisers recommending that LCR be awarded the concession of the real risk that LCR would not achieve its financial targets.
And it is thought to add that they were aware that should LCR fail, Eurostar would be handed back to the public sector with a bad debt. Government would then be under pressure to provide more public cash.
However, sources close to Prescott claimed that he is unlikely to back down. The decision on whether the project goes ahead is more likely to be taken by the Cabinet once LCRs 30 day development period expires on 27 February.
Central Railways has written to Prescott offering to include provisions for Eurostar in its plans for a high speed freight link from Manchester to Lille.
The 3bn plan was dropped by MPs in 1996, but the company is again trying to woo the government.
But the proposal has so far been dismissed by the City.