30 March 2001
In a highly critical report published on March 28, the NAO declared that economic benefits from the revised public-private partnership between the Department of the Environment, Transport and the Regions, contractors London & Continental Railways and rail operators Railtrack are 'debatable'. It said they rely heavily on 'unquantifiable benefits' and 'out-of-date economic growth assumptions'.
The questionable benefits include regeneration opportunities – valued at £500m once the rail link is built – and national prestige, according to the NAO.
The NAO found time-saving benefits for travellers were 'overestimated' and based on 'incorrect assumptions'.
There was also a considerable risk to the taxpayer, according to the NAO, because the government had promised to lend LCR £1.2bn to pay Railtrack's access charges on its trains once the rail link is built.
'The economic case for building the Channel Tunnel rail link is not very strong,' said assistant auditor general Jeremy Colman. 'Any benefits from the deal are likely to be marginal. There is still a very large risk for the taxpayer.'
The revised deal in October 1998, which includes Railtrack as part-builders of the link, was agreed after the near-collapse of the original deal between the DETR and LCR.
In that deal, which was agreed in 1996, LCR's 'overly optimistic' forecast for the operating performance of its train operating company, Eurostar UK, meant it had to ask for an additional £1.2bn from the government, on top of £2bn already awarded to build the rail link.
The restructured deal, described as 'more robust' by the NAO despite its warnings on expected profits, ensures the rail link will be operational without an increase in direct grants from the government, and also means its construction is not dependent on Eurostar UK's performance. The financial arrangements for the restructured project, however, will require 'significant and long-term government support'.
'If regeneration and passenger benefits are not as high as expected, the link is unlikely to be good value for the taxpayer on economic grounds,' the report said.
PFmar2001
