Revenue fall will put pressure on Eurotunnel

News of declining revenues is set to renew public debate over the future of Eurotunnel when the company announces its annual results today.

The Anglo-French group faces a financial crisis in two years' time, when the minimum usage charge commitment by Eurostar, the Channel Tunnel train operator, and the freight operator EWS expires. This could cut Eurotunnel's revenues by £80m a year, equal to 15 per cent.

But today's results are expected to disclose a 5 per cent drop in revenue last year, taking Eurotunnel into pre-tax losses which could be more than £100m. That means the company will not have the money to pay interest on its £6bn debt. Under present arrangements, Eurotunnel is able to pay some of its interest charges in the form of "stabilisation notes" which convert into shares. Since 1998 this has saved the company nearly £500m in interest payments, but it has added to future liabilities.

The mounting difficulties, which run counter to earlier plans and assurances, could prompt a fresh contract with the British and French railways to let Eurotunnel itself carry more passengers and freight through the tunnel.

The new contract proposals, due to be unveiled alongside today's results announcement, could see the railways' 50 per cent share of tunnel capacity fall to 40 per cent or less.

Eurotunnel, which already operates its own passenger and freight shuttles between Folkestone and Calais, would use the increase in its capacity to start operating its own through freight services or allow other operators to launch passenger services. One option is a low-cost commuter service from Lille near the French coast to Ashford in Kent, or direct to central London. Another is to charge Eurostar per train, instead of the present per-passenger basis. Eurostar would then bear the risk of running half-empty trains.

Richard Shirrefs, Eurotunnel's chief executive, is expected to blame the revenue fall on intense price competition. However, the need to pay all its interest in cash from the end of next year will prompt a big increase in its current £300m-a-year interest bill, forcing a new business plan.

Eurotunnel has been put on notice that it cannot expect further handouts from the British or French governments, which would in any case meet fierce protests from airline and ferry operators.