The Channel Tunnel. Success or failure?

The Channel Tunnel is 50.5 km-long railway tunnel under the English Channel, linking Folkestone in Kent (UK) with Coquelles in Pas de Calais (France), operated by Eurotunnel under a concession from the British and French Governments that runs until 2086. The tunnel, which extends 38 km up to 75m under the seabed was built by a private sector consortium of 5 British and 5 French construction companies, requiring £13.650 million (2018 prices) and about 6 years, to be officially inaugurated on 6th may 1994.

Three types of services operate through the tunnel:

  • High speed passenger services between London and Paris, Brussels and Amsterdam operated by Eurostar;
  • Through rail freight services, jointly operated by DB Cargo UK International and SNCF; and
  • Car and truck carrying shuttles between the terminals of Folkestone and Calais operated by Eurotunnel’s “Le Shuttle” service

The Channel Tunnel is a complex project in every sense. The severe engineering challenge of building a 40 km-long tunnel under the sea was further complicated by the trans-national dimension of the project and the indecision of successive UK and French Governments. This resulted in a long and arduous decision making process spread over 25 years. Once the Governments decided to proceed with the project, the actual construction of the tunnel was disrupted by significant financial difficulties that brought the project close to collapse. The project was, nevertheless, completed broadly on time. In engineering terms, the Tunnel is an excellent piece of infrastructure linking Britain to the Continent 40m under the seabed. It was privately financed without public recourse to public budgets, but with necessary Government involvement, which is reflected in the complex matrix of contractual agreements.

Soon after the start of operations, Eurotunnel reached a delicate financial situation which resulted from the escalation of construction costs, a large overestimation of the cross-Channel market and the underestimation of the cross-Channel ferry operators’ competitive response which led to a very damaging price war. Despite the financial restructuring completed in 1998 Eurotunnel’s finances remained fragile to the point that in 2007 a second and major restructuring was required, which involved a debt write-off of £3,400 million and reduced the shareholder stake to just 13%. This dramatic second financial restructuring, however set the company on solid financial grounds and has since been generating sufficient operating profits to service its debt burden and, since 2009, Eurotunnel has paid out dividends to shareholders.

Over 21 million passengers used the Channel Tunnel in 2017, roughly evenly split between Le Shuttle car carrying services –which carried 2.6 million cars- and Eurostar high speed trains. In terms of passengers, the Channel Tunnel carries about 60% of the total cross-Channel demand.

Moreover, 22.5 million tons of goods are anomaly transported via the tunnel, 95% of which on the 1.6 million trucks carried by Eurotunnel’s shuttle and the remainder in the more than 2,000 through rail freight trains operated.

The economic analysis of the project suggests that the Tunnel cannot be considered to be a success given the very large amounts of resources used to construct an expensive piece of infrastructure which only provides a marginal advantage over long established ferry services.

From the customers’ point of view, however, the project has been a great success in that the Tunnel effectively broke the ferry operators’ cartel that had been operating for decades on the cross-Channel routes and led to significant price reductions.

For investors, the project has been disastrous.

The Channel Tunnel is an phenomenal piece of infrastructure that links France and the UK over 50 km under the sea. In its 22 years of operations, there have been two serious fire incidents, none of which causing any casualties.

Overall, taking into account capital and operating costs, revenues generated and user benefits from journey time savings and fare reductions, the transport Cost Benefit Analysis confirms the poor viability of the project, as the costs incurred still overweight the benefits generated, rendering a negative NPV of -£8 billion.

Ricard Anguera is a Senior Manager at ALG’s land transportation team. Mr. Anguera spoke at the Twenty years under the Channel, and beyond Conference in Brussels on 24th May 2018.

About the authors
Ricard Anguera is a Senior Manager at ALG’s land transportation team. Mr. Anguera presented a paper on the Channel Tunnel CBA at the European Transport Conference in Strasbourg and spoke at the Twenty years under the Channel, and beyond Conference in Brussels on 24th May 2018 in Brussels.
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