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Last Updated: Monday, 9 February, 2004, 13:51 GMT
Analysis: Eurotunnel's money troubles
By Hugh Pym
BBC News industry correspondent

Celebrations are in the offing later this year for the 10th anniversary of the opening of the Channel Tunnel.

But the mood can hardly have been helped by the downbeat announcement of the boss of the tunnel's operating company this week.

Richard Shirrefs, chief executive of Eurotunnel, told BBC News that the cross-channel rail industry was working on a "failed business model".

He told Radio 4's Today programme that "you can't have a 25bn infrastructure which is not generating enough traffic - this is a big structural problem".

Still suffering

Long-suffering shareholders will feel they've heard it all before.

Debt crises and displays of brinkmanship by the company and and its lenders were regular features of the construction phase.

But rail users and motorists who now take the cross-channel link for granted may wonder why there are still financial problems 10 years on.

Eurotunnel has announced its latest financial results which showed an operating profit of 170m for 2003, down 18%.

But this was dwarfed by interest payments of 318m, and the company racked up total losses of 1.3bn.

With debts standing at just over 6bn, its difficult to see how Eurotunnel can trade its way towards sustainable profits.

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The company currently receives guaranteed minimum user fees from the train operator Eurostar and the railfreight companies.

But under the financial structure originally agreed between the British and French Governments, these guaranteed fees will cease after November 2006.

When the tunnel was built it was assumed that traffic levels would have grown rapidly enough to generate a healthy income for Eurotunnel.

Last year's 6.3 million rail passengers, though, fell far short of original predictions of 16 million a year.

The 1.7 million tonnes of freight carried in 2003 can be set against an initial forecast of an annual 7 million.

Fees fracas

Eurotunnel wants to work with the rail companies and governments to draw up a new business model.

Mr Shirrefs has suggested that user fees should be reduced to encourage Eurostar and the freight companies to expand traffic through the tunnel.

The company hopes that if it is seen to be generating higher revenue the lenders may agree to debt restructuring.

But there was a cool response from Eurostar. A spokesman said: "This is a tale of two companies - whatever problems Eurotunnel may have, we are enjoying healthy growth."

As one source puts it "the channel tunnel won't disappear".

But its financial future is uncertain.

Haggling over the costs of using the tunnel, never mind the bills still outstanding from the project's construction, will continue to focus the minds of rail managers and ministers.

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