Prescott urged to rescue pounds 5.4bn Channel rail link
Monday 26 January 1998
LCR, led by its chief executive Adam Mills, is due to meet the Deputy Prime Minister, John Prescott, tomorrow to urge the Government to make a pounds 1.4bn grant available earlier than planned.
The subsidy does not become payable until the 68-mile link from the Kent coast into London's St Pancras station has been two-thirds built. But LCR is expected to argue that it needs the funding much earlier because revenues from its existing Eurostar service have not met expectations.
The meeting with Mr Prescott will be followed by an LCR board meeting on Wednesday at which its financial position will be reviewed. Weekend reports suggested that if the funding appeal failed then LCR would hand back its contract to build the link. But Mr Mills is said to have described this as "alarmist rubbish".
Construction is due to begin later this year and the link is scheduled to enter service in 2003, cutting the journey time from London to Paris to two hours 20 minutes and making Brussels less than two hours away.
LCR has so far raised about pounds 300m in bank loans and a further pounds 100m in equity from its eight shareholders, the biggest of whom are SBC Warburg Dillon Read, Bechtel, the US construction group, Virgin, National Express and Systra, the consultancy arm of the French state-owned railway SNCF.
But it will shortly need to raise further funds to cover the operating costs of the loss-making Eurostar service and the start of engineering and construction work.
As recently as nine days ago, Mr Mills said the project "is now off the design table and construction proper can begin shortly". He added that LCR remained on course to launch a massive debt and equity raising exercise in mid-1998. However, there is now concern that LCR may find itself in breach of its existing banking covenants unless it can secure funding before then.
Although there is undoubtedly some brinkmanship taking place, a source close to Mr Prescott said last night: "LCR's situation is capable of becoming precarious very quickly. I would be very surprised if Mr Prescott were inclined to step in with the cash but the Government will not be keen to see the project shudder to a halt either, particularly when we have just taken over the presidency of the European Union.
If Mr Prescott is to be persuaded to bring forward payment of the subsidies, he is likely to want LCR's shareholders to stump up further finance as well. "It is hard to see why the Government or anyone else would want to put up money earlier than agreed if the shareholders have stopped contributing," said the source.
The possibility remains that Railtrack will agree to join the consortium. Railtrack is one of six parties LCR is talking to about helping to finance and build the link and may be prepared to take an equity stake of up to pounds 500m. Alternatively, Railtrack may only be interested in taking over the entire project and not in bailing LCR out.
Apart from the pounds 1.4bn subsidy, LCR's dowry when it won the concession also included St Pancras station, development land behind Kings Cross and at Stratford in east London, the existing Waterloo International terminus and maintenance depots in west London and Manchester.
Eurostar passenger numbers rose by more than 20 per cent last year to six million. This year it expects to benefit from the staging of the World Cup in France and a new high-speed link between Brussels and the tunnel which opened in mid-December.
Eurostar has also altered its strategy to concentrate more on increasing income per passenger than traffic volume but it will still need passenger numbers nearer 10 million a year to make money.
LCR refused to comment on the meeting with Mr Prescott other than to say that it had been scheduled for some time as part of the requirement to give the Government regular updates on progress.
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