October 9th, 1997
Possible Deal on Eurotunnel Concession
Eurotunnel wants to lengthen its operating concession to 99 years, so as to get more favorable conditions on loan refinancing. The British government may be about to comply, in return for lower rates for freight trains using the Chunnel
Railfreight Distribution, which runs trains through the Chunnel, is the last part of the former British Rail to be privatized. And EWS, the successful company that bought three of the four other BR freight companies, is set to buy RfD too. A preliminary deal was reached on the sale of RfD in March, and now there seems to be a deal that adresses four key issues.
The key issues are:
- that RfD, along with French SNCF, has safety certification to operate through the Chunnel,
- that the British government wants to see more freight trains use the Chunnel,
- that Eurotunnel currently lacks incentive to increase rail freight -- it has guaranteed income of £20 million annually from freight trains until 2006, and
- that Eurotunnel wants the British government to okay a deal to extend the operating concession from 34 to 99 years.
The government wants Eurotunnel to trade a longer operating concession for lower rail freight rates. Since this would benefit EWS as the new Chunnel freight train operator, the government wants EWS to start paying back government grants in 2006. EWS has received grants to offset restructuring and redundancy costs.
A stumbling block remains, however, and this is Eurotunnel's own shuttle trains. They carry trucks, and if more freight trains were to frequent the Chunnel, the trains would be after the same business that the trucks bring to Eurotunnel's shuttle trains. An industry group, The Rail Freight Group, estimates it is 2½ times more expensive to move freight through the Chunnel by train than by Eurotunnel's own truck shuttle.
Source: The Financial Times
Note: The deal has since been closed. More Eurotunnel news here.
