The Channel Tunnel – thank God the use of that awful conflation Chunnel never took off – is now in its mid teens and yet is a remarkably underused asset. Sure, there are a couple of Eurostar trains every hour and a full complement of Shuttle trains but that does not even add up to half the tunnel’s potential capacity of 20 trains per hour. There is just a handful of railfreight per day, a reduction from the early days of the tunnel and barely a fraction of the number that had been promised when the construction of the tunnel was first mooted.
The underuse of the tunnel has not, however, attracted much media attention, unlike the two other tales of woe which have beset the tunnel project, its financial problems and the series of fires which have disrupted services on three occasions (of which more later). The financial difficulties are largely now gone, thanks to the restructuring deal agreed with the banks two years ago, which effectively meant that much of the £6bn debt was written off, allowing Eurotunnel to more or less proceed as a normal business.
And that effort at normalisation has been demonstrated recently with the takeover of GB Railfreight to add to the creation of an internal railfreight company by Eurotunnel, and the possible bid for HS1. Eurotunnel is, therefore, showing its willingness to become a wider player in rail, and it is impossible to contain the enthusiasm of Jacques Gounon, the company’s chairman and chief executive who has just celebrated five years in the post and was responsible for concluding the highly complex restructuring deal.
Gounon, an engineer by training, comes from that French school of impressive technocrats, who flit between the private and public sectors without pausing for breath, and who combine a particular Gallic type of confidence bordering on arrogance, that is backed up by remarkably sharp and practical brains. Gounon speaks in heavily accented but perfect English, eschewing my attempts to get him to talk in French by continuing to use English even when I phrase my questions in French.
I have always felt that the tunnel is not only a greatly underused asset, but one which the British have yet learnt to appreciate let alone exploit. Therefore I start by recalling that when the tunnel was completed in 1994, there was an expectation that the ferries would be wiped out by the competition and that no one would ever fly between London and the two capitals served by Eurostar, Paris and Brussels. It has not, I suggested, worked out like that.
M Gounon agrees: ‘There is not a tunnel reflex. The ferry is still considered as the normal route between the two countries. Yet, we have had 200 million passengers through the tunnel, including both shuttle and Eurostar, and Eurostar heading for ten million per year. There is a lack of recognition of the value of the tunnel. Yet, there is a lack of knowledge about the high speed route. I was talking to one of our main insurers who was very surprised to hear that you could get to Ashford in half an hour from St Pancras and Folkestone in an hour. Rail is not yet perceived by people in Britain as the fast way to get from A to B. I think there is a good future for the tunnel but there is a lack of understanding about the quality of the service that we offer.’
Inevitably, M Gounon begins to list the handicaps suffered by the tunnel. Indeed, the sense of grievance felt by M Gounon and his fellow Eurotunnel directors – and indeed, the largely French shareholders – quickly develops into the theme of this interview. Chips and shoulders come to mind, but perhaps that is what is needed in the face of innumerable difficulties and obstacles put in the way of the channel tunnel operator.
M Gounon warms to his theme: ‘Eurotunnel has been undermined by several aspects of government. We are the only concession in the world which has to pay a fortune – 5m Euros per year – to its regulator. In addition, we pay for a lot of other things like Kent police. So there are all sorts of abnormal charges on the tunnel when we know that ferry and more widely the sea sector is supported by politicians. For example, there are substantial subsidies when you build a new ship, the ferries are not paying the full depreciation on their equipment, the ferries are not paying their social charges, and if you look at the port organisation in France, there is also less charges than for us, so the charges the port imposes on the ferries are not representative of the costs.’
He is particularly incensed by the support for the port of Calais by the French government at both national and local level which has involved spending of 500m Euros: The tunnel is three kms from the Port of Calais and there is also the Dunkirk port and the Boulogne port. The Calais port is in full competition with the tunnel. A lot of public money has been invested in it, while nothing has been done to support Pas de Calais trains. When you take such investment decisions, it has long term implications, maybe for one century. For local political reasons, they are subsidising the port in competition with the tunnel, and not supporting the tunnel because there is no such a local connection.’
He is in full flow and goes onto give a clear example: ‘There are a lot of French cars that go to Britain. This traffic arrives in Calais by train but then it does not go through the tunnel by train. Instead, they stop in Calais, cars are disembarked, put on boats, and then go to an English port, and on to the midlands, or wherever. They do not go directly, but if look at the cost, how can that be economic? The cost of disembarking, driving the cars, and so on must be very high – it is not a question of the charges we impose to go through the tunnel. They do it for historical reasons, and it shows there is no willingness, despite the magnificent public speeches, to support railway freight.’
M Gounon then touches on a sensitive issue. SNCF, the French nationalised railway operator, owns Sea France, a loss-making cross Channel ferry company, and he suggests that this leads to unfair competition: ‘The customer is dealing with SNCF to deliver its products to Calais, and SNCF is using an old model of business, which is trying to favour its own ferry subsidiary. ‘
Summing up on why he feels Eurotunnel gets a raw deal from government and the regulators, he suggests there are two sides to its unfair treatment: ‘On the one hand, you have additional charges on Eurotunnel and on the other you have subsidies to the ferry companies. When the tunnel was built, it was felt that it would be so successful and rich while the ferries were expected to be in such poor state that they would need to be subsidised by various means.
‘I am not against competition. Eurostar needs competition to progress, the ferries need competition to progress but it has to be fair competition. I think that competition on the Channel is unfair. This explains why the tunnel has not been the success it deserves.’
But is it really all down to regulation and government interference? I ask M Gounon about fares because Eurotunnel prices have traditionally been set at a premium for the Shuttle services compared with the ferries: ‘We do set a price that is competitive. Yes, we are more expensive, but more frequent, every 15 minutes, while for the ferries you have to wait an hour or two between ships and we are quicker, crossing the channel in just 35 minutes compare with two hours for the ferries.’ I suggest it is 90 minutes: ‘The ferries are currently lowering speed to save fuel which. And you can only take four or five people in the car. And we go up to 9 people per vehicle. £300 return for up to 9 people is not that expensive per head. Our customers are happy to pay for the service they get.’
Interestingly, Eurotunnel dropped the use of the Le Shuttle as a brand some years ago, but M Gounon thinks this was a mistake: ‘Everything since then has been branded as Eurotunnel as the Le Shuttle brand was deleted several years ago and no longer used any more in a commercial way. I think that has contributed to the lack of perception about the tunnel. The Le Shuttle brand was very popular and I think we should reintroduce such a brand.’
He has, though, ruled out a price war with the ferries. There was just before M Gounon arrived at Eurotunnel and the feeling is that everyone lost out: ‘We were all chasing after the same market. What allows us to have higher charges is the frequency of crossings.’
The trucks, too, pay a premium rate and M Gounon is unapologetic: It has been calculated that a driver’s time is worth 65 euro per hour, more than £50. The time saving difference between us and the ferries is between one and two hours, and the saving therefore is between 50 and 100 pounds. The difference we charge is not as much as that, which means the truck companies are not reflecting the real extra cost by going on the ferry. Our market share is close to 40 per cent of passengers with car, and the truck business is 35 per cent, when the historical one is 38 which we believe we can get back to.’ The loss of share was a result of the fire in September 2008 which came at a particularly bad time for Eurotunnel as contracts with the big companies are mostly negotiated in the autumn and the partial closure meant that many returned to the ferries.
There have, actually, been three serious fires in the tunnel since it opened in 1994, all caused by lorries on the open sided wagons which carry heavy goods vehicles. While the one in August 2006 was minor causing only a short delay, the first in November 1996 caused extensive damage which resulted in a lengthy closure of part of the tunnel, as did the most recent one. Was this not a design problem with the truck wagons that should have been remedied and would it not be safer to have them fully enclosed. M Gounon is adamant: ‘The lack of enclosure is not a risk. I accept, though, that that when you have so many trucks going through, there is a risk. But if you change the design, you will not reduce the risk. The report into the fire in 2008, which has been finished but is not yet published will show that the real cause of this was an electrical fault in a Volvo truck – you know that Volvo has had an issue with this. It was a new truck, so no question of being an old one. It is not a matter of the design of the wagons, and indeed you could say that as it is not enclosed, that makes it easier to attack the fire.’
But the fact that the air goes through surely stokes up the fire, I suggest: ‘When the train is running, there is no significant expansion of the fire because the wind is a way to trap the fire. But in 1996, they decided that the traditional rule of any railway tunnel, which is to go out of the tunnel, should be changed and the decision has been made to stop the train in the case of fire. When you stop the train, the fire can expand, and on top of that in 2008 the firemen made a mistake, which was to continue to bow with the ventilation. So if the train is stopped and you are blowing air through, you can see that you have a problem.’
‘From our point of view, we need the train to go out if there is a fire and we have all the means to deal with it outside. But we realise that for some reason the train might stop in the tunnel which is why we have decided to install in the tunnel two specific stations where a fire could be contained, giving time to stop the ventilation which is key, and giving time for the firemen to reach the train and put out the fire. Even if the supply fails, the momentum of the train will be able to take it to one of these stations. It can coast to one of these stations. So we have the means to contain a fire We made an experiment in Spain recently with a burning truck which was incredibly successful.’
Away from the negatives, there is no shortage of potential developments for Eurotunnel. Change is in the air. There is the expansion into railfreight, the sale of HS 1 and the potential arrival of competitors to Eurostar. Railfreight is an area of contention, not least because less is going through the tunnel than used to travel on the train ferries before its construction. There have been widespread complaints from the railfreight lobby that one of the main barriers to increased use of the tunnel for railfreight has been the high charges for trains through the tunnel which works out at something like 60 Euros per train kilometre compared with 2 Euros or 3 Euros on normal track. M Gounon defends this arguing that the two are not comparable, and that in any case price is not the reason for the paucity of railfreight: ‘When you look at the supply chain, the cost of going through the tunnel is not very much. – 5 per cent, something like that. First, SNCF had no interest in transporting freight thru the tunnel. It has now improved but was damaged by strikes. Then there is DB Schenker, which is another scandal from my point of view, puts other trains on the sidings, while allowing their trains through directly. That is unacceptable. And there is no support from government for railfreight. And the other key issue is the lack of quality of service.’
So, I ask, none of this is the fault of Eurotunnel? ‘I don’t think our charges are preventing anyone from using the tunnel. It is easy for trains to go through the tunnel.’ In order to prove that it can be done, Eurotunnel is now becoming an operator of railfreight. Eurotunnel created its own subsidiary, Europorte Channel (originally called rather oddly Europorte 2) many years ago but it was dormant for a long time until Eurotunnel renewed its licence in 2006 with the French government and the company began to look for opportunities to stimulate the freight market. It has bought seven Class 92 locomotives to provide the traction. The aim is to attract more railfreight through the tunnel and last December the company took over the French operations of Veolia Cargo. It is now complementing this with the GB Railfreight purchase which M Gounon said at the announcement that ‘it was a strategic move to boost our railfreight business’. Eurotunnel will aim to ensure that GB Railfreight – whose name is being retained – maintains its UK domestic business, and expects its customers to be attracted by new cross channel services.
M Gounon accepts that the railfreight business through the tunnel has been the most disappointing aspect of its operations. He is keen to stress the environmental advantages of railfreight and there are further plans in the offing: ‘We are working on something very specific, to transfer freight from air to rail and we are looking for a terminal in the London area for such express freight. It is a long term vision – FedEx are interested. It is a big opportunity, and we need to see if there is political willingness to support Green transport like that.’ He accepts, though, that such schemes take a long time to set up but there is keen interest to develop high speed rail freight as an alternative to the environmentally less sustainable air transport. The stumbling block, strangely, is getting access to HS1 and one way around this is for Eurotunnel to buy the line which is being put up for sale by the new government.
Eurotunnel is planning to bid for the line with two of its shareholders, the insurance company M & G, and Goldman Sachs infrastructure partners. M Gounon sees many synergies: ‘We would like to buy High Speed One because this would lead to much greater traffic. If we are able to coordinate the tunnel and HS1, we would be able to create additional services, like a Javelin going from Ashford to Lille.’
Indeed, I suggest that the lack of local services has been one of the great disappointments of the tunnel and I ask him why no one has run such services before: ‘There’s lots of reasons why it has never happened. There are technical and commercial reasons. Eurostar is more and more focussing on point to point travel, between London and Paris, and London and Brussels, with fewer intermediate stops. Then there are the safety rules in the tunnel which insist on 18 carriage trains, but that is not really a question of safety but one of politics. If you take the Hitachi train, which is a very nice train, there is a signalling issue which we will manage quite soon, so it has all the features in order to Cross the channel and we could imagine there would be a regional liaison, St Pancras, Ashford, Calais Frethun, Lille, something like that. If we have the Eurostar and the regional service, it is something that makes sense – of course it will not be an additional 10m passengers per year but you could see a significant increase in use. So the reasons are mainly bureaucratic, not commercial.’
We would not run services would not be done by ourselves, but just to create conditions for general traffic. HS1 is quite different, the tolls have been designed by the ORR for 5 years and it is at a level that is not suitable to increase traffic because it set as a cost per train. The reason why Eurostar diminished the number of trains was to pay less for HS1. Our charge is per passenger – so it is worth running trains with few passengers because the payment to Eurotunnel will be low.
M Gounon expects the crazy 18 carriage rule – which is required by the Channel Tunnel safety authorities to allow for an evacuation and splitting of the train – to go, which would free up the tunnel for other types of trains, notably German ICEs: ‘The long train sets are not a safety rule – that was demonstrated in the Eurostar crisis in December when they were not separated – so one of our targets is to try to have this changed. They are a bureaucratic rule. The Government Commission is open to it, and working on it but it takes time.’
M Gounon is annoyed that Eurostar has decreased the number of seats by 8 per cent in the timetable last year: ‘They want to get more people on fewer trains, to reduce their costs’. He is convinced that new operators, notably Deutsche Bahn, will run trains between London and Cologne, and quite possibly Frankfurt, and also Amsterdam which is now linked with a high speed line to Brussels: ‘Eurostar has no interest in these services’. Why do you think that I ask? ‘Good question. They think they are successful, which is true, with their existing market and they don’t think these new ones would generate much additional traffic. They seemed to have lost their willingness to innovate.’ He reckons that ‘a service to Frankfurt would reinforce the position of DB. It is a political vision. It would take five hours but could be reduced to four’. There is recognition in the rail industry, however, that DB is unlikely to go head to head with Eurostar or SNCF on the same routes.
M Gounon is most adamant about the need to make better use of the existing infrastructure, such as HS1 and the tunnel. I put to him that currently, government requires a rate of return when it builds major infrastructure: ‘Correct. But this is not right. The government should pay for these infrastructures – they will not get a rate of return on it, but they have an effect that creates wealth.’ Try telling that to the Treasury, I say. M Gounon laughs. He ends, though, on an update note, but with, of course, a bit of lobbying: ‘Politicians have the real responsibility. They need to support green transport initiatives, they need to support HS2 and they must support the right pricing. The aim must be traffic expansion. When you have infrastructure like the tunnel, that must be the aim. Instead of supporting the infrastructure, once it is built, they support the rivals who are suffering from the construction of the infrastructure. That is crazy.’