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Eurotunnel will fold within two years without long term contracts

EUROTUNNEL FACES financial collapse within two years unless it can lock cross channel passenger and freight train operators into long term access contracts, analysts said this week.

They said the Channel Tunnel operator needed to establish long term revenue streams as part of a financial restructuring plan it is now in the process of negotiating.

This week the company said it wanted to cut tunnel access charges it levies on Eurostar and English Welsh & Scottish Railways services. It hopes to negotiate major reductions to spur volume growth.

'But it is not clear what Eurotunnel would want in return, ' said one analyst this week. 'Almost certainly it would be to lock operators into long term agreements.'

On Monday Eurotunnel announced that it was seeking British and French government approval for a plan to restructure its finances.

Ten years after the tunnel opened the operator has concluded that it is unable to survive without reducing its massive £6.4bn debt.

With a guaranteed revenue stream from long term tunnel access deals it would be easier for Eurotunnel to persuade creditors to swap short term debt for much longer term loans.

City analysts said restructuring might involve the banks trading debt for preference shares in Eurotunnel, although this would dilute existing shareholdings.

Figures released by Eurotunnel on Monday made it clear that paying annual interest charges of £318M a year was the major factor preventing it from making money or breaking even.

Last year Eurotunnel's operating profits fell 12% to £170M and could drop further this year, threatening the company's capacity to run as a going concern.

Calls for government aid to help repay the debt were rapidly ruled out by a Department for Transport spokesman.

That focuses attention the access charges paid by French rail company SNCF, British Eurostar operator London & Continental Railways and freight mover EWS.

The £232M earned from track access charges last year was a significant contribution to turnover alongside the £309M earned by Eurotunnel's own cross-channel rail shuttle for cars and lorries.

But charges have been held artificially high by a minimum payment for tunnel use agreed when the Channel Tunnel first started operating.

The minimum payment level is due to expire in 2006 and is expected to drive down access charges.

Analysts said that this will cut Eurotunnel's revenues by between £70M and £80M a year.

Severe competition from ferries, low cost airlines and the impact of the Iraq war were this week blamed for the fall in last year's operating profits.

Just 6.3M passengers travelled last year compared with original estimates of 16M made before the tunnel opened. Only 1.78Mt of freight was carried compared with original estimates of 5Mt.

Train operators this week were cagey about the suggestion. London & Continental Railways said cutting access charges was not critical to its efforts to boost passenger numbers.

EWS said: 'The issue is not solely one of costs but of reliability and availability of equipment.'


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