PAC attacks flawed Channel Tunnel link deal

21 Mar 02
The Private Finance Initiative deal to build the Channel Tunnel rail link was 'fundamentally flawed' because it relied on over-optimistic passenger forecasts and cushioned shareholders against risk, the Commons Public Accounts Committee has said.

22 March 2002

The PAC has published a damning report on the deal, signed in 1996 with London and Continental Railways, to build a high-speed link between the capital and the Kent coast. MPs said the business plan was based on 'very uncertain' estimates of passenger numbers, which made its commercial basis 'highly risky'. The low level of risk capital invested in the project by shareholders meant that when these risks became reality they 'had the department over a barrel'.

Committee chair Edward Leigh slammed the deal as being 'all very reminiscent of the Dome'. He attacked the former Department of the Environment, Transport and the Regions, which negotiated the PFI, for agreeing to a 'win, win' situation for shareholders.

'The imperative to complete the project meant that the shareholders had to be kept sweet, at the expense of the taxpayer. It is very likely that further substantial sums of public money will be needed to keep the company afloat,' Leigh said.

By 1998 it was clear that passenger numbers would not meet expectations and the forecast revenue that was supposed to service the contractor's debt would not appear. L&C asked ministers for £1,200m in grants and, although they refused, the deal was restructured to allow multibillion pound bond issues guaranteed by the government.

MPs criticised the DETR's failure to monitor the deal effectively and called on its successor to keep a much closer eye on progress.


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