London & Continental Railways, the consortium chosen to build the 68- mile link and operate Eurostar services, announced an important breakthrough yesterday by naming contractors for the key tunnelling sections into St Pancras station.
Work on the tunnels, worth pounds 200m, will start in April and removes any lingering doubts that the project would stop short of central London because of financing difficulties.
Adam Mills, LCR's chief executive, said the consortium was on course to raise up to pounds 5.4bn in debt and equity in the middle of this year to cover total financing costs, including construction which is estimated at pounds 3bn. The link is scheduled to open in 2003.
LCR also said that it was close to signing a deal to redevelop St Pancras Chambers, the listed Gothic-style building at the front of the planned Eurostar terminus, while the planning application to develop an intermediate station at Ebbsfleet in north Kent had been approved.
LCR plans to raise about pounds 1bn through a share issue and a further pounds 4.4bn in bank loans of which pounds 1.4bn will be repaid from a government grant payable once the project is two-thirds complete.
However, LCR declined to quash speculation that Railtrack may emerge with a significant equity stake in the project. A spokesman said: "There are all sorts of options as to how Railtrack could be involved and putting in equity is one of the them. However, discussions are still at a preliminary stage."
The other attraction of bringing Railtrack into the project is that it has a triple A debt rating, making it easier and cheaper for LCR to raise loans. Railtrack is one of six outside parties with which LCR is in discussions about helping to finance or construct the link.
There are eight members of the LCR consortium at present. The biggest are SBC Warburg Dillon Read and Bechtel, each with stakes of 18 per cent, followed by Virgin and National Express, each with 17 per cent.
LCR has come in for criticism from the City for the lack of detailed information about the project and delays in fund raising, leading to fears that it would turn into another Eurotunnel - vastly over budget and behind time. However, LCR has defended the delays, insisting that it will not go to the capital markets until it has a cast-iron investment case and is certain of its costings.
LCR also defended the performance of its Eurostar services to Paris and Brussels, saying that passenger levels had risen by more than 20 per cent to 6 million in 1997, giving it 60 per cent of the rail/air market between London and Paris.
Analysts estimate that Eurostar will have to increase passenger numbers to nearer 10 million before its starts to contribute profits. But Hamish Taylor, Eurostar's managing director, said that passenger yields had continued to improve last year, helped by a new ticketing and reservations system.
He added that bookings on Eurostar's new ski train service from Waterloo to the French Alps were "encouraging" while services to Brussels had been increased from eight to 10 trains a day following the opening of a high- speed line through Belgium which reduced journey times from three hours to two hours 40 minutes.
The construction contracts announced yesterday cover a quarter of the total tunnelling along the route. The preferred contractors are Tracklink, a joint venture between Mowlem, Holzmann and Besix, and a joint venture between Nuttall/Wayss and Freytag/Kier.
The biggest contract, worth pounds 500m, for a tunnel taking the line to Stratford in East London is expected to be awarded shortly.
The development partner for St Pancras Chambers, formerly the old BR Midland hotel, will be announced in the next fortnight along with an outline of the proposed scheme. LCR launched a competition to develop the Grade One listed building in September, 1996.