LCR chiefs to collect pounds 600,000 as taxpayer faces pounds 800m bill

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The Independent Online
Directors of London & Continental Railways, the failed Channel rail link consortium, are set to collect pay-offs totalling pounds 600,000 while taxpayers face a bill of up to pounds 800m to cover its liabilities, it emerged last night.

The four executive directors, led by chairman Sir Derek Hornby and chief executive Adam Mills, are all on one-year contracts and an LCR spokesman confirmed these would be honoured if the consortium was put into liquidation.

Meanwhile, it became clear that LCR's liabilities, which will revert back to the Government should the consortium be wound up, are far higher than initial estimates.

In addition to taking on LCR's pounds 430m of bank debt, which includes pounds 140m represents the money spent on preparatory and engineering work on the 68-mile link, the taxpayer would also inherit the consortium's leasing liabilities on its fleet of Eurostar trains. These are understood to total around pounds 275m. Further liabilities relating to work carried out and contracts entered into bring the total to nearly pounds 800m.

In contrast, the liabilities of LCR's eight shareholders, which include Richard Branson's Virgin Group, Europe's biggest bank SBC Warburg Dillon Read and Bechtel, America's second biggest construction company, are restricted to the pounds 100m of equity they put in.

An LCR spokesman said yesterday that there was no question of the consortium shouldering any liabilities beyond those it was contractually obliged to accept under the agreement drawn up with Sir George Young, the then Transport Secretary, in 1996.

"These arrangements were not widely publicised at the time but one can only assume the government of the day felt this was the correct way to get the deal done," he added.

Senior ministers have grown increasingly alarmed at the extent of the liabilities faced by taxpayers and view LCR's directors with barely disguised contempt.

LCR retorts that had Eurostar and the rail link project remained within the public sector, then taxpayers would be far worse off than they are now. "At least the taxpayer has been spared the pounds 100m we invested in the project. There is no appetite among shareholders to shoulder five times that amount," said one senior member of the consortium.

Mr Mills is thought to have been paid around pounds 200,000 last year and Sir Derek about pounds 100,000, not including pension entitlements. The other two executives, finance director Robert Holden and Union Rail managing director John Neerhout, are thought to have received around pounds 160,000 and pounds 100,000 respectively. The spokesman said they were fully entitled to compensation for loss of office under their service contracts.

The pounds 100m of equity capital put up by the shareholders will be mainly used to run down the company and ensure a solvent liquidation. LCR's own liabilities consist mainly of creditors, including staff, property obligations and responsibility for some continuing Eurostar losses.

LCR employs about 30 staff at its corporate headquarters while Union Railways, the subsidiary responsible for managing the high-speed rail link, employs a further 150. LCR also has a contractual relationship with Rail Link Engineering, a joint venture made up of four LCR shareholders which is designing the link and which employs 950 people.

The rolling stock lease liabilities on Eurostar's seven trains are in the region of pounds 175m. Eurostar has a further pounds 100m of leasing liabilities through its 61 per cent stake in Nightstock, a joint venture with the German, French and Dutch railways.

Meanwhile, Railtrack, one of the leading contenders to take over the project, confirmed after a board meeting last night that it would give "serious consideration to any sensible proposal" on condition it served the interests of shareholders and did not compromise its existing investment programme.

Railtrack's preferred option is a cut-price scheme that would cost perhaps a third of the pounds 5.4bn LCR would have needed. Under this option, Railtrack would build the high-speed link only as far as Southfleet in Kent and then continue the route on existing track into Waterloo International. This would save the costs of tunnelling under central London and constructing a new terminus at St Pancras.

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