I am today announcing a financial restructuring of London and Continental Railways Ltd (LCR). This is a further step toward this Government’s stated intention to complete the restructuring and sale of LCR and its assets, following the enactment last year of the Channel Tunnel Rail Link (Supplementary Provisions) Bill. The financial and operational restructuring of LCR’s interests in the high speed line to the Channel Tunnel and in Eurostar operations will establish these businesses on a commercial basis, with the aim of delivering the best return for the taxpayer from previous significant public investment.
As part of this restructuring LCR is transferring ownership of its finance subsidiaries, which together are liable for £5.169 billion of debt in the form of bonds and securitised notes, to the Government. This debt is already supported by a range of Government guarantees. Separately, the Government are purchasing, for a nominal sum, the shares of LCR, taking it into direct government ownership. The Government have held a special share in LCR since 1999 which has given them a wide range of controls over the company. LCR and its liabilities are already accounted to the public debt; consequently, there is no change to existing public borrowing requirements.
LCR owns HS1 Limited, the company which operates St. Pancras International Station and the high speed line to the Channel Tunnel. It also owns the UK’s interest in the Eurostar international joint venture and a range of property development interests.
These are successful businesses.
LCR managed the construction and commissioning of the new railway, St Pancras and the other stations, and the substantial associated land development and regeneration projects. It did so on time and within budget and remains the right vehicle and management to drive through the next phase of the High Speed 1 project.
High Speed 1 is Britain’s first high speed railway, and first new railway for over 100 years. It provides fast international connections and starting this year will see the introduction of high speed commuter services from Kent. It is an essential component of our rail capacity plans for London and the south-east and also of the Olympic transport network. It has the capacity and potential for freight, international and domestic service growth. Performance on the line currently averages at five seconds infrastructure delay per train—world-class standards.
Thanks to the opening of St Pancras and the new line, Eurostar last year carried a record number of passengers—over 9 million—a 10 per cent increase in passenger numbers. It has a market share of over 75 per cent on the London-Paris and London-Brussels routes. This success in attracting passengers away from short haul airlines has saved an estimated 40,000 tonnes of carbon over the past two years. It is the pre-eminent international passenger train operator.
This success has been enabled by substantial public investment, represented in the debt now held by LCR and its subsidiaries and which is already underwritten by the Government. The Government therefore want to see the taxpayer benefit from the value which has been created in these companies, as well as realising further benefits to passengers in terms of more and new products and services.
This was signalled in the Statement made by the then Secretary of State for Transport in March 2006 when he said:
“The Government's objective will be to ensure continuing value for taxpayers' money, including the successful delivery of the Channel Tunnel Rail Link and the continuing safe and efficient operation of Eurostar.”
On 14 May this year the Government received state aid clearance from the European Commission to undertake a financial restructuring of LCR. In announcing its approval, the Commission said:
“The operation notified by the United Kingdom involves public support mainly in the form of debt cancellation and puts in place a sustainable financial structure for the high-speed rail link…It will benefit competition and users in view of the forthcoming liberalisation of international passenger transport by rail in 2010.”
The Commission also said that it:
“…regarded positively the unbundling of operation and infrastructure activities and the future significant reduction of access charges.”
The purpose of the restructuring is to separate HS1 Limited and Eurostar from their past construction liabilities. This will enable HS1 Limited to charge a commercial rate for access to the line and thereby attract more trains and a wider choice of operators. Being charged a proper market rate also offers Eurostar the best chance to develop its customer products and services on a sustainable commercial basis. It is for this reason that the Government have taken separate ownership of the finance subsidiaries currently within LCR that hold these past liabilities. This recognises the existing underwriting by the Government of these debts and will see the cancellation of all the associated guarantees and future liabilities from the Government to LCR and its operating subsidiaries.
Doing so returns considerable value to LCR and its operating subsidiaries. The Government are determined that value accrues in full amount to the taxpayer. The simplest and most direct way of securing this is for the Government to take ownership of LCR, making comprehensive the extensive rights already held in the company by virtue of the Government’s existing special share.
With the completion of this restructuring, the next step will be to prepare for the sale of a long-term concession in High Speed 1, the value of which will be used towards offsetting the public investment made in the construction of the railway. It is the Government’s intention to proceed with the sale of this concession as soon as the necessary contractual and regulatory structures are put in place in support of the future operation of High Speed 1 independent of government and LCR and as and when market conditions allow.
In parallel, the Government are discussing the future of the Eurostar joint venture with our international partners in order to determine the best future strategy for the business: one that capitalises on past success; offers the best opportunity for sustainable future development; and properly reflects the full value of the UK contribution.
As well as leading these negotiations on the part of the Government, LCR will continue to manage the development of its substantial property interests, the value of which will be realised on a case-by-case basis, at a time which reflects the best balance of value and risk to the taxpayer.