SINKING MONEY IN THE TUNNEL
The Channel Tunnel is in financial and political trouble.
Michael Trend reports MANY people, calling to mind the great palaver over the Bill presently going through Parliament and the pomp and circumstance surrounding the Prime Minis- ter's joint appearance with the French President at Canterbury Cathedral in order to bless the project, doubtless believe that the Channel Tunnel will now be built. But there are dark clouds over the White Cliffs and a reasonable chance that this project could end up, like all of its predecessors, as a hole in the ground.
The problem lies, as it always has done in the past, on this side of the Channel, more particularly at the moment in the London boardroom of Eurotunnel. Lord Pennock, the British joint-chairman, has recently made it clear that he wishes to step down as soon as a suitable replacement can be found. But finding this suitable replace- ment has proved to be very tough — Sir John Harvey-Jones of ICI and Sir Jeffrey Sterling of P&O both rejected informal approaches. And then we learnt that Sir Nigel Broackes, who was said to have had the support of the Bank of England and the Government, had resigned as a director. This does little for general confidence in the project.
There have also been continuous prob- lems financing the operation. The cost of the scheme in 1993 prices is estimated by Eurotunnel to be £4.7 billion. Their financ- ing plan aims to raise a total of £6 billion: £1 billion in equity, £4 billion in mainline bank loans and £1 billion in stand-by credit from the same sources. Last September £46 million was raised from the original shareholders. In October a further £206 million was added to this from share placing, some bought by the original share- holders again but the majority by new shareholders. Finding this money was very sticky and the Bank of England and the Government had to twist many arms in the City to ensure that it was done. It was, but only with a most undignified scramble.
Raising the rest of the money will be no easier. The remaining £750 million equity and the £4 billion loan are closely depen- dent on each other. The loan agreement has to be legally binding on the underwrit- ing group of 40 banks before further equity can be raised; but the loan cannot be drawn down until the equity has been raised and most of it spent. The present broad programme is to sign up the banks in early June and make the public offering in July. There are many in the City who simply do not believe it can be done.
Moreover, there have been reports of considerable jealousy between the con- tracting companies who hope to benefit from constructing the tunnel, as well as personality clashes on the Board itself. Taylor Woodrow and Wimpey, who have backed the project from the start, could doubtless see no good reason why Sir Nigel Broackes's Trafalgar House group (who originally belonged to a rival consortium) should win a significant share of the huge contracts likely to be involved.
The level and degree of the problems in London begin to suggest that the project itself lacks the necessary confidence at the British end. Potential investors have to take many considerations into account before they risk their money in a venture of this kind, there being so many variables over the long-term period which it will take to complete the project — interest rates, inflation, potential cost over-runs, uncer- tainty over demand for the tunnel. And unlike the banks, whose loans will be secured, the equity investors are the ones only one example among many and the present difficulties in the British boar- droom show that this half-hearted spirit continues, greatly to the detriment of the who stand to `go up the chute', as City analysts so graphically described their possible fate.
The tunnel project is certainly a difficult one in engineering terms but it is by no means pushing at the frontiers of tech- nology. Serious and feasible plans for such a link between this island and the Conti- nent have been worked on for well over a century. And while the sums of money involved are huge, more difficult projects have been financed in recent years on the international markets.
What then is the nature of this crisis of confidence that threatens the whole pro- ject? Is the present problem, again so often in the past, a failure of will? Is the view of that Will who wrote of 'this other Eden, demi-paradise, this fortress built by Nature for herself against infection and the hand of war' beginning to prevail once again over the present-day promoters of the scheme? As Lord Dunsany wrote in this precise context in 1882, 'I am content to accept the assurance of its promoters that it will pay; that is to say — that it will pay its shareholders. But will it pay England?' This is the view that the present Foreign Secretary, Mr Alan Clark, and other senior public figures seem to hold today.
Moreover, one only has to point to the full-dress Channel Tunnel Treaty between Great Britain and the French Republic of 1973 to show that international agreements at the highest level are no guarantee that any project will actually get off — or rather, get under — the ground.
The Prime Minister has invested a great deal of her own prestige in the present tunnel scheme. For a hard-headed politi- cian she has been uncharacteristically `romantic' about the idea. The tunnel is to be, in her view, a symbol of Britain's new-found commercial and industrial con- fidence; the greatest project of its kind anywhere in the world since the war; and, best of all, financed at no cost to the tax-payer. She means to keep the Govern- ment at arm's length while hoping to enjoy in the eyes of history much of the credit for bringing the project off.
They order these things very differently in France, however; and the government there has taken a much closer hand in the details and the financing of the scheme. Sir Nicholas Henderson's recent account of the competition for the project (Channels and Tunnels) reveals both how determined the French government is prepared to be and how painfully 'hit or miss' the British side of the endeavour was at that stage.
The Channel Tunnel Group, of which he was the chairman, was the best organised in the field but, nevertheless, was held together with string. One memorable mo- ment will serve to illustrate this. On the eve of the deadline for the submission of proposals the vital, final financial negotia- tions with CTG's French partners took place in the Stansted self-service restaurant at small tables with chairs fixed to the floor. The principals of this great project drank half-bottles of wine for which the restaurant could not find a corkscrew. Fortunately one of the chauffeurs was an ingenious fellow and got them open. How the French financiers must have appreci- ated this little English drolerie. But it was only one example among many and the present difficulties in the British board- room show that this half-hearted spirit continues, greatly to the detriment of the project itself. One can reasonably conclude that if the millennium deadline is to be reached after all a considerable act of will — both in psychological and political terms — is still going to be required on the English side of the English Channel.