The deal means that Eurotunnel will now be entitled to operate the tunnel for 65 years instead of 55, taking the concession through until 2042.
The agreement also clears the way for Eurotunnel to go ahead with plans to raise an extra pounds 1bn from its banks and shareholders next spring to meet the escalating costs of the tunnel, due to open in May.
Eurotunnel is seeking another pounds 500m from its shareholders in the form of a rights issue and about the same amount from its worldwide banking syndicate. However, it emerged yesterday that the banks were threatening not to provide any further finance unless the concession period was extended.
A Eurotunnel spokesman said: 'The extension increases the comfort for our banks and the likely return for our shareholders.
'That will help with the further fund-raising we need to carry out next year.'
The concession was fixed at 55 years in 1987, based on project costs of pounds 6bn and assumptions about how long Eurotunnel would need to repay its bankers and produce a return for shareholders.
Since then, however, the cost of the tunnel has risen to pounds 10bn - partly because of the additional safety, security and environmental demands imposed on Eurotunnel by the Anglo-French Inter-Governmental Commission.
Eurotunnel's compensation claim for these extra cost burdens, due to have been submitted early next year, has now been abandoned.
In return it will have the opportunity to earn billions of pounds more in revenues, making the tunnel a more attractive proposition to the banks and a more valuable asset to its shareholders.
However, Eurotunnel is pressing ahead with a claim against British Rail and its French counterpart, SNCF, for the one-year delay in the introduction of Eurostar through train services between London and Paris.
A separate claim is also likely to be pursued against BR for delays in the completion of the international terminus at Ashford station in Kent.
Eurotunnel refused to be drawn on the value of being allowed an extra 10 years on its concession. According to its most recent revenue forecasts the tunnel will earn pounds 554m in 1995, the first full year of operation, and pounds 1.23bn in 2013, the furthest distant year for which estimates are available.
The 220 banks financing Eurotunnel are due to be repaid within 18 to 21 years, leaving the tunnel debt free.
In a statement issued last night John MacGregor, Secretary of State for Transport, stressed that although the concession period had been extended, no government funds or guarantees had been given and it remained for Eurotunnel to finance the entire project.
The Channel Tunnel Act prevents the British and French governments from funding the tunnel directly.
The settlement with the two governments marks the end of most of Eurotunnel's disputes with contractors, suppliers and regulators.
Eurotunnel has largely resolved the pounds 1.4bn cost dispute with the Channel tunnel contractors, Transmanche Link, and a pounds 400m claim submitted by the consortium building the passenger shuttle trains has also been settled.
Although the announcement of the extension to Eurotunnel's concession came after the financial markets had closed, its shares closed 23p up at 563p.Reuse content