City backs Channel Tunnel Rail Link rescue

THE CITY yesterday gave the thumbs-up to the deal struck between Railtrack and the Government to rescue the pounds 5.5bn Channel Tunnel Rail Link.

Shares in Railtrack raced ahead as the operator of the national rail network announced that it had reached an agreement to take over the 68- mile link in two stages at a cost of pounds 3.3bn.

Under a complex financing plan announced in the Commons, the Government will in effect guarantee a pounds 3.7bn bond issued by the developers of the project, London & Continental Railways, to complete construction of the link from the Kent coast into London's St Pancras Station.

The bond issue will be in addition to the pounds 1.8bn of public subsidy already committed to the project.

Railtrack has agreed to acquire the first phase of the link, from the tunnel to Ebbsfleet in north Kent, for pounds 1.5bn in 2003. It has also taken an option to buy the second, more expensive phase of the link, into St Pancras, for pounds 1.8bn in 2006.

Railtrack will make a profit from the access charges British Airways and National Express will pay to operate Eurostar services between London, Paris and Brussels. The Government has agreed to fund pounds 140m of the access charges between 2010 and 2020 if there is insufficient passenger income to cover Eurostar's payments to Railtrack.

City advisers involved in the restructuring of the deal estimated that by agreeing to underwrite the bond with its own credit rating, the Government could save pounds 1.2bn in financing charges. This is equivalent to the amount of extra subsidy that LCR asked for in January and which the Government refused, casting doubt over the future of the rail link.

Railtrack's chief executive, Gerald Corbett, said it would have an incentive to build and take over the second phase of the link because it will be allowed to earn a bigger rate of return under the access charge agreement signed with the Government.

In return, the Government will take a 35 per cent stake in LCR, which will retain any profits above and beyond the access charges levied by Railtrack, and a 5 per cent stake in the Eurostar operation.

Railtrack and the Government are forecasting that passenger numbers on Eurostar will rise from 6 million last year to between 7.5 million and 8 million when the first phase of the high-speed link opens in 2003 and double to more than 12 million once the link goes to St Pancras.

Railtrack shares rose 41p - more than 3 per cent - as details of the rescue plan emerged. Chris Tarry, transport analyst with Dresdner Kleinwort Benson, said it was "pretty satisfactory" from Railtrack's standpoint. "It is an important signal that Britain will have a growing rail network and it represents a significant opportunity for Railtrack, given the incentives that are built in to to construct the second phase of the link."

Other analysts said the agreement demonstrated that Railtrack, which has been heavily attacked in the past by ministers for its bumper profits, could negotiate a ground-breaking deal with the Government on such an important and high-profile project.

By backing the bond with its credit rating, the Government is likely to shave financing costs by two percentage points which is worth pounds 120m a year on a pounds 6bn project. Although a commercial issue, the bond will in effect act like a gilt. When Railtrack repays the bond to the Government its cost of capital will be higher but this will be more than covered by the access charges it will levy.

Meanwhile Railtrack disclosed that it is to increase its investment spending on the rest of the rail network by 16 per cent to pounds 1.45bn this year and complete the refurbishment of half its stations by next year and all of them by 2001.

This came as it brought forward its full-year results by a day, announcing that pre-tax profits last year rose 12 per cent to pounds 388m on turnover of pounds 2.4bn. The final dividend was increased to 16p, making an increase for the year of 8.6 per cent.

The lobby group Save our Railways attacked the news, claiming that Railtrack was making more than pounds 1m a day on taxpayers' subsidies of pounds 5m a day. Its campaign director Jonathan Bray said Railtrack was "little more than a gigantic money laundering machine turning public subsidy into private profit".

Arts and Entertainment
Characters in the new series are based on real people, say its creators, unlike Arya and Clegane the Dog in ‘Game of Thrones’
tv'The Last Kingdom' embraces politics, religion, warfare, courage, love and loyalty, say creators
Sport
Sergio Romero saves Wesley Sneijder's penalty
world cup 2014But after defeating the Dutch, Lionel Messi and Argentina will walk out at the Maracana on Sunday as underdogs against Germany
Sport
Scoreboard at the end of the semi-final World Cup match between Brazil and Germany at The Mineirao Stadium in Belo Horizonte
Sport
'Saddest man in Brazil' takes defeat with good grace, handing replica trophy to German fans
PROMOTED VIDEO
News
peopleThe Game of Thrones author said speculation about his health and death was 'offensive'
Arts and Entertainment
Martin Freeman and Lauren O'Neil in Jamie Lloyd's Richard III
theatreReview: The monarch's malign magnetism and diabolic effrontery aren’t felt
News
Glamour magazine hosts a yoga class with Yogalosophy author Mandy Ingber on June 10, 2013 in New York City.
newsFather Padraig O'Baoill said the exercise was 'unsavoury' in a weekly parish newsletter
Extras
indybest
News
people'She is unstoppable', says Jean Paul Gaultier at Paris show
Sport
Alexis Sanchez and apparently his barber Carlos Moles in Barcelona today
football
Arts and Entertainment
Miley Cyrus has her magic LSD brain stolen in this crazy video produced with The Flaming Lips
video
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
In his own words: Oscar Wilde in 1882
theatreNew play by the Oscar Wilde's grandson reveals what the Irish wit said at his trials - and what they reveal about the man
News
people
Arts and Entertainment
Unless films such as Guardians of the Galaxy, pictured, can buck the trend, this summer could be the first in 13 years that not a single Hollywood blockbuster takes $300m
filmWith US films earning record-breaking amounts at the Chinese box office, Hollywood is more than happy to take its lead from its new-found Asian audience
News
The garage was up for sale in Canning Place Mews for £500,000
newsGarage for sale for £500,000
Life and Style
tech
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Financial Planning Manager, Qual Accountant, £380

£300 - £380 per day: Orgtel: Financial Planning Manager, Banking , London, £30...

Business Analyst - Financial Services, Trading Systems, Agile

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fina...

Day In a Page

The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

Hollywood targets Asian audiences

The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

Grindr founder Joel Simkhai: 'I've found love on my dating app'

Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

Is it time to ditch autocorrect?

Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
10 best girls' summer dresses

Frock chick: 10 best girls' summer dresses

Get them ready for the holidays with these cool and pretty options 
Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

Westminster’s dark secret

Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

A History of the First World War in 100 Moments

Dulce et decorum est: a life cut short for a poet whose work achieved immortality
Google tells popular music website to censor album cover art in 'sexually explicit content' ban

Naked censorship?

The strange case of Google, the music website and the nudity take-down requests
Howzat! 8 best cricket bats

Howzat! 8 best cricket bats

As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

David Luiz falls from leader figure to symbol of national humiliation

Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil