Railtrack saves the day for LCR

Outlook On Raising Interest Rates, The Drinks Giants' Merger And Financing The High-Speed Rail Link

After the salutary experience of Eurotunnel, raising finance for the high-speed rail link that will eventually connect London and the rest of the country to the Channel tunnel was always going to be a difficult proposition to sell. But London and Continental Railways, the consortium selected to build the 68-mile link, seems to have gone one better than even Eurotunnel could manage under Sir Alastair Morton's tumultuous leadership.

LCR has run into its first full-blown financial crisis before a single sod has been turned or the City tapped for pound in either debt or equity. The project, we are told, is in meltdown mode. In a desperate bid to slash costs (estimated at pounds 3bn before financing charges) LCR is contemplating building it in two phases. That means passengers will only be whisked a grande vitesse as far as the Essex hinterland whereupon they will have to make do with a rather more stately progress into Waterloo via the rackety old Southern rail network. What about the St Pancras terminus and seamless onward travel north of the capital? We'll build it if we ever raise the money.

Step forward Railtrack with a triple-A credit rating and more cash flow than it knows what to do with to save the day. It will take a stake in the project, rustle up another pounds 600m and guarantee that Britain has the 21st century rail network that a nation committed to being at the centre of Europe needs and deserves.

Given that LCR numbers SBC Warburg among its shareholders and the world's second-biggest bank among its providers of project finance, talk of a financial crisis looks a little overdone.

What is apparent, however, is that Railtrack wants to muscle its way in and seems to have the backing of the Government which just so happens to be putting up pounds 1.4bn of the construction costs.

Railtrack has the kind of cashflow that LCR will struggle to raise from its Eurostar services, the project experience and the access to cheap capital. It also has a vested interest in ensuring that St Pancras goes ahead since that will free up freight capacity on existing rail lines to the tunnel.

The last thing LCR can afford is a rerun of the Channel tunnel so it is right to want the project costed down to the last penny before pressing the button. But when it does, don't be too surprised to see the Fat Controller, Railtrack's Sir Bob Horton, somewhere on the footplate.