COMMENT : Rail link could succeed where Eurotunnel failed

'Since the Eurotunnel disaster, there surely cannot be much of an appetite for privately financed projects with anything resembling a tunnel attached to them'

At last. Richard Branson seems finally to have got something. The national lottery? No chance. Channel 5? Come off it. The high speed Channel tunnel rail link? Well, alright then, but only as part of an eight member consortium with Virgin in a subserviant position to the City investment bank, SBC Warburg. The real question, however, is not so much whether it was Mr Branson or others that secured the project for London & Continental, as just what the consortium has actually won. Post the Eurotunnel disaster, there surely cannot be much of an appetite for privately financed projects with anything resembling a tunnel attached to them.

In the case of the high speed rail link, there are 26km of the things and that is not the only similarity with Eurotunnel. The proposed method of finance - debt supported by a very sizeable stock market flotation - also bears a marked similarity. Nor do you need much of a memory to know that Warburgs was the bank which convinced a generation of hapless investors to sink their money into Eurotunnel, not just once, but twice.

Enough scepticism, though. There are in fact a number of good reasons for believing that the high speed rail link might succeed where Eurotunnel failed. The first and most important is a whopping pounds 1.5bn in Government and EU grants. Most of this is a capital grant towards the estimated pounds 4bn eventual cost of the project. Though this will not be paid until well into the project's construction phase, it does provide a degree of comfort not available to Eurotunnel.

The balance is in the form of deferred payments by the Government for use of the track by comuter trains - rental income, in other words. Add this to the revenue stream London & Continental will get from the one- third interest it inherits from British Rail in Eurostar, and the company already has a quite considerable guaranteed income. The idea is that this will be used as a way of guaranteeing to bankers that debt servicing and repayment obligations will be met. The guaranteed income will in some way be securitised. No wonder that even Eurotunnel-scarred bankers are saying, "Hold on, this might actually work".

A further plus point is that there are no contractors in this consortium. True, Arup and Bechtel are closely related towards the bottom of the evolutionary chain, but as design engineers and project managers, they are also an entirely different species. With Eurotunnel, the contractors were allowed to write their own blank cheque. That won't happen this time round.

Furthermore, Eurotunnel began tapping the equity market before it knew in any detail what it was supposed to be building. In this case a detailed design and engineering plan involving expenditure of up to pounds 250m will be completed before a penny's worth of equity is raised on the stock market.

All good reasons, then, why the high speed rail link, the largest project so far to have emerged from the Government's private finance initiative, might work. Even so, it is going to require all SBC Warburg's powers of persuasion to close the credibility gap - the more so since it is equity investors, rather than bankers, who this time will be expected to provide the bulk of the finance.

Stakeholding is a dangerous slogan

Tony Blair may have stirred up more than he bargained for when he pinned New Labour's colours to the stakeholding mast. In a speech yesterday, John Monks, general secretary of the TUC, interpreted this woolly concept as an open door to winning new employment rights. Speaking at a conference organised by the Commission on Public Policy and British Business, Mr Monks added fuel to the debate by arguing that stakeholding could only be built "on a floor of employment rights." He used the occasion to argue for a new industrial relations settlement based on new employment rights for individual employees. These would include, for example, the right to be consulted about major changes in a company through democratically chosen representatives; and the right for unions to be recognised when a majority want it. Rest assured, the Tory party machine will demonise Mr Monks' words as the smoking gun of recidivist trade unionism lurking behind stakeholding rhetoric.

However, it was some less predictable voices at the conference which should give Mr Blair real food for thought about the possible dangers of his new umbrella slogan. Colin Mayer, Professor of Management Studies at Oxford University, drew a contrast between the more rigid economic structures of the stakeholding countries of Europe and the greater flexibility that came with the Anglo-Saxon model of shareholder capitalism. He warned that we could be leaping onto the stakeholder bandwagon at the very moment when technical innovation made flexibility particularly important.

Another perspective came from Matthew Gaved, a specialist on corporate governance at the London School of Economics. He argued that the real problem with shareholder capitalism in the UK was not one of excessive power but of impotence. Big fund managers like Hermes and M&G complained they were next to powerless when trying to influence the management of a poorly performing company. That left exit - the sale of their shares - or a takeover battle as their only real sanctions. Reforms were needed to allow shareholders to exercise their voting power on their own resolutions more frequently than the AGM.

The slogan of the stakeholding economy may make for good soundbites for Tony Blair in the run-up to an election but Labour needs to do a lot more work on the policy if it is to be taken seriously as a solution to the vexed problem of corporate governance in Britain, let alone the still more ambitious task of improving the performance of the economy.

BP attempts to crunch the customer

The last one out switches off the lights. The rationalisation of great swathes of European industry continues apace with BP and Mobil merging their European downstream activities in a deal which, competition authories allowing, will almost certainly prove a trend setter. Where's it all going to end?

In theory, the relentless drive towards lower costs in industry and commerce, should result in lower prices. If the market is doing its job as it should, the consequent savings flow into new industries, new technologies and ultimately new jobs. But it is not altruism alone which drives businesses into these huge, rationalising mergers. The motivation is as much about market power and dominance as anything else. Don't be fooled. Competitive pressures may be the immediate cause of the BP/Mobil get together. By becoming number one in Europe, or close to it, however, the ultimate idea is to crunch the customer.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and to give free concert as part of the Global Poverty Project

Mary J Blige and to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...