Chunnel may 'cost taxpayers millions'

Passenger estimates were over optimistic

Over-optimistic forecasts for the success of the Eurostar rail link could cost British tax payers £1.2bn, according to a spending watchdog.

The National Audit Office has called into question financial assumptions made by transport officials when the government agreed to bail out the cash strapped Channel Tunnel high-speed rail link project.

In a new report it says the Department of Transport used out-of-date economic growth estimates and "incorrect" assumptions about the time-saving benefits of the link.

This makes a mockery of public-private partnerships

Conservative MP David Davis

Government estimates of a net benefit of £1bn was more likely to be nearer £220m, said the NAO.

If passenger levels were particularly bad, a worst-case scenario could result in the government having to lend £1.2bn to London & Continental Railways (LCR).

"On the basis of recent Eurostar UK performance... the link represents poor value for money in terms of estimated economic benefits," stated the report.

Taxpayers, it said, were "exposed to considerable financial risk if Eurostar UK does not perform as well as expected against revised forecasts".

'Doubtful forecasts'

The report published on Wednesday looked at events in the late 1990s when LCR ran into financial difficulties in its plan to build the 68-mile link from Folkestone in Kent to London.

Deputy Prime Minister John Prescott announced a new financial package in June 1998 involving more government money and the splitting of link construction into two phases.

Project timeline

December 1998: Folkestone to North Kent stage started

Summer 2001: North Kent to St Pancras due to start

October 2003: First stage due to end

December 2006: Second due to end

Railtrack will purchase phase one but has not yet to decided whether to take up its option of purchasing phase two.

The report said the transport department reckoned the scheme would produce benefits of £3bn for a total public sector contribution of £2bn.

But the report said the benefit of the link would fall to zero if Eurostar fell just 4% below forecast passenger numbers.

Failures discovered by the report included:

forecast of future passenger growth was so high that, by 2030, there would not be enough trains to carry the customers.

only one third of services would benefit from time savings of 20 minutes not an average of 30 minutes as predicted.

failure to include costs of £130m, which have now grown to £170m, for works needed at King's Cross Station in London and on the A2 and M2 in Kent.

The report recommended that in deals like this, the private sector partners should bear their share of the risk.

It also said the department should continue to monitor the link deal and ensure that the regeneration and passenger benefits of the link were realised.

High cost

Conservative MP David Davis, chairman of the House of Commons Public Accounts Committee, said the original rail link deal, signed in 1996, was "flawed in that it relied on over-optimistic forecasts of revenue for Eurostar".

"We see yet again that the private shareholders have got off without paying an extra penny and many of them have made extra profits out of the Channel Tunnel," he said.

"If the private sector knows at the end of the day the government will bail them out, there is no genuine transfer of risk."

Liberal Democrat transport spokesman Don Foster said: "This is a damning indictment of successive governments' ability to monitor and control this project.

"This failure looks set to cost the nation dear."

Eurostar high-speed train services through the Channel Tunnel could be affected by French strike action starting at 1900BST on Wednesday and ending at 1700BST on Friday.