Eurotunnel’s depressing legacy

When Tony Blair and Jacques Chirac meet today, the EU constitutional treaty will not be the only grandiose but doomed European project they discuss. Eurotunnel, owner of the channel tunnel, looks set finally to go bust within weeks now, after years of staggering under colossal debts. Chirac may well cave in to demands to offer some solace to the shareholders, 80 per cent of whom are French. Yet Blair will say something to the effect of “nothing to do with me, guv”. And the Prime Minister may be right. The tunnel works, and will continue to do so under a new operator when Eurotunnel goes under. So should we care when such big projects bankrupt their sponsors?

Nothing better encapsulates the difference between the approach of the two governments towards big projects than the tunnel. The French ethos is to combine vision with massive funding and draconian central government planning powers – as seen in the stunning new Millau viaduct, or the gleaming TGV fast train network. The British approach, as illustrated in the unhappy histories of the Channel Tunnel Rail Link, Jubilee Line Extension and West Coast Main Line upgrade, is an unhappy marriage of private caution and government penny-pinching.

The channel tunnel, an odd mix of the two approaches, was misconceived from the start. In 1985 French president François Mitterrand somehow persuaded Margaret Thatcher that a tunnel would be an important link between the two countries. She wanted a road tunnel but that proved technically impossible, so we got the present railway tunnel, with its shuttle services.

Thatcher, however, insisted that it should be entirely funded by the private sector and thanks to the heroic efforts of the late Sir Alastair Morton, the banks were cajoled and bullied into putting up the money when probably even then they knew it was a lost cause. A bit of underhand public support was thrown in through getting the national rail companies to pay high prices for paths through the tunnel that were unlikely ever to be used, but nobody really cared.

Now the loss of that covert support, scheduled for next year, is one of the reasons why Eurotunnel is a busted flush. More serious is the fact that the project was based on far too optimistic predictions of how many people would travel through the Tunnel. The ferries were supposed to have been completely wiped out by now, but the project’s creators failed to realise that people like their little cruise with the White Cliffs of Dover as a backdrop. Throw in the unpredicted rise of low-cost airlines and it is no surprise that Eurotunnel is a basket case. But in any case, the economics of Eurotunnel were undermined right from the start by the fact that it cost twice as much to build as projected.

Chirac will probably now suggest some form of indirect help, such as trying to get SNCF, the French rail company, to pay more for the right to run trains through the tunnel. Direct government aid is not allowed under the legislation which enabled the construction of the tunnel, but Blair will not entertain any sort of help to the shareholders. The fact that Eurotunnel will go bust leaving much of the £6.4 billion debt unpaid, and the shareholders holding worthless certificates, is of no concern to him. After all, Le Shuttle car and lorry services and Eurostar train services
(run by a separate organisation) will continue to use the tunnel because they provide more than enough revenue to pay for the day-to-day running costs.

In this sense, the impending bankruptcy of Eurotunnel is of no great consequence. If the French shareholders were mug enough to invest in the project which their government implicitly presented as an act of patriotism, then so what?

But we should, perhaps, be grateful to them. They have helped fund a stunning piece of infrastructure that will be probably be operating long after anyone reading this article is dead. They have made a sacrifice, but it is a worthwhile one, just as late-nineteenth-century investors in the London Underground, most of them ordinary people, got very little in return for their role in creating a vital part of London’s transport network. That’s the way of capitalism: you take a risk and if it does’nt work out, you lose your money.

Unfortunately, one cannot be so cavalier because there are long-term consequences to the failure of the Eurotunnel. The way the project has gone off the rails has lessons for other such projects and will leave an important legacy in its wake.

We need big projects such as the Channel tunnel because their beneficial economic effects are far greater than normally predicted. Does anyone, today, care that the Jubilee Line cost a billion pounds more than originally envisaged? It has not only regenerated whole swathes of south-east London but was the catalyst for the amazing growth of London Docklands. The East London Line Extension, which has finally got a firm go-ahead, will be equally beneficial. So would Crossrail, if the details can be sorted out – as would a new line between Chelsea and Hackney.

This is where we do have something to learn from the French. France has built a network of high-speed rail lines that help create an aura of modernity for the country and which have revived whole regions. If only there had been a similar vision on this side of the Channel in the 1970s, we would now be enjoying high speed travel around the country and the motorways would be far less congested.

Unfortunately, the collapse of Eurotunnel will make the likelihood of new such schemes more remote in future. Private investors will look at the fate of the shareholders and hold on to their cash. The banks involved will only put up their money in return for higher rates of return, which will in turn raise the cost of such projects. And the Treasury will, as ever, say these projects are too risky and expensive. The price of Eurotunnel’s collapse will be paid not by a few unlucky shareholders, but by future generations, who will moan at our timidity for not giving them the roads and railways they need.

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