Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

Why go-ahead does not need Railtrack

Section Two of the Channel Tunnel Rail Link into London moved ahead last week despite doubts over Railtrack's ability to fund it. This is why.

When deputy prime minister John Prescott rescued the Channel Tunnel Rail Link in 1998 he struck a one-off deal to guarantee that the line would be built.

London & Continental Railways was still to provide the finance through a bonds issue worth £2.65bn, but the Government stepped in to underwrite the repayment.

Railtrack was also brought in as guaranteed purchaser of the first section once it was completed in 2003.

The deal meant work could start almost immediately.

Heralded by Prescott's silver shovel, this kicked off in October 1998 with Railtrack very much embedded in the Rail Link Engineering design team.

However, the future of the second, more complex and expensive tunnelled section through east and north London has always been less certain.

Under the terms of Prescott's 1998 deal, Railtrack was given an option to purchase it. And as Railtrack pointed out last week, a final decision on this does not have to be taken until 2003.

But, the uncertainty over Railtrack's involvement is not enough to stop construction of section two from starting.

Prescott's deal has underwritten enough cash from bond issues and Government grants to keep the project in concrete and tunnel linings for some time yet.

The numbers are complex and, due to different base year indexing, do not add up. But in simplistic terms LCR is able, by arrangement with the Government, to use money generated in the first bond issue plus grants for operating the line to get things going.

Once the first section is complete, the purchase price paid by Railtrack plus a second bond issue will help fill the coffers.

The only financing not yet arranged is to cover charges for banking facilities which were made available to cover cost over-runs. On section one the cost of this £700M overdraft facility has been met by Railtrack.

Clearly, by being part of the construction team from the start, Railtrack has been able to manage this risk and hence the cost on section one.

Similarly LCR knows that the sooner the owner of section two jumps on board, the more control it will have over costs and time scales.

Antony Oliver Construction costs Cost of section one: £1.67bn (Jan 97 prices) Cost of section two: £2.5bn (Jan 97 prices) Government grants for operation Section one: £670M (Jan 97 prices) to be released against construction milestones by 2003.

Section two: £1.1bn (Jan 97 prices) to be released against construction milestones by 2007.

Cash for construction Section one Bond issue for section one - £2.65bn (Jan 97 prices) - available.

All issued by LCR but guaranteed by the Government 10 year bonds: £1bn 20 year bonds: £1.225bn 30 year bonds: £425M Overdraft facility underwritten by Railtrack - £700M against cost over-runs on section one construction - available.

Section two Cash from sale of section one to Railtrack - £1.5bn (2003 prices) - agreed.

Bond issue for section two of around £1bn (2003 prices) - not issued but agreed that the Government will underwrite.

Financing for banking facilities to underwrite cost overruns - not yet agreed.

Income for LCR on completion of section one in 2003 Actual construction cost of railway less operator's government grant: £1.5bn (2003 prices).

LCR retains ownership of the bonds for section one.

Return on property investments and investment in Eurostar to fund interest for bond holders.

Income for LCR on completion of section two Purchaser (to be announced) pays actual construction cost at 2007 prices less operational grants previously drawn down.

LCR retains ownership of bonds for section two.

Return on property investments and profits from Eurostar to fund interest for bond holders.

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Please note comments made online may also be published in the print edition of New Civil Engineer. Links may be included in your comments but HTML is not permitted.