London and Continental Railways (Hansard, 19 February 1998)

§ Lord Berkeley
asked Her Majesty's Government:
What is their current contingent liability in respect of debts incurred by London and Continental Railways.

§ The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Baroness Hayman)
My Lords, London and Continental Railways raised some £430 million of debt to fund the development of the CTRL and Eurostar operations for the period up to the main fund-raising for construction. Under the funding agreements with the lending banks, that debt is to be repaid from Eurostar revenues in the event that the development agreement is terminated.

§ Lord Berkeley
My Lords, I am grateful to the Minister for that Answer. At the time the Channel Tunnel Rail Link Bill was passing through your Lordships' House, and the Government were awarding a contract—after competitive tender—to London and Continental Railways, the then Minister of State for Transport, John Watts, issued a memorandum on 8th March which stated that none of the total government finance of £1.8 million would be payable until three-quarters of the way through construction. It also stated that LCR would be responsible for the construction and commercial risks. There was nothing in the document about quantifying contingent liabilities. Can the Minister say whether she agrees that the House was seriously misled by the previous government in being led to believe that all early construction risks had been taken by the private sector?

§ Baroness Hayman
My Lords, the development agreement which this Government inherited means that if LCR fails before it raises the funding for the construction of CTRL, the debts accumulated while it was in charge—the majority of which arise from Eurostar losses—revert to the public sector and to the Government.

Lord Bruce of Donington
My Lords, did the Minister just say that the Government, in agreement 312 with the private sources of finance and with London and Continental Railways, agreed to underwrite in effect any default in borrowing? If that is the case, surely it must be that Parliament was seriously misled. According to the Financial Times of 12th February, the contingent liability has materialised at around £420 million. That is not peanuts. Why was it that the government of the day did not reveal that contingent liability, which they must have taken into account?

§ Baroness Hayman
My Lords, I cannot answer for the previous government as to what they revealed about the development agreement. Paragraph 4(c) of the explanatory memorandum stated that it involved the ability of the government to enter into direct agreements with LCR's financiers. I have just explained the effect of that to the House. The money that was raised by LCR for the design and development of the CTRL and the accumulated losses in operating Eurostar, if they were not refinanced by raising funding for the main project and if the development agreement failed, revert to the public sector.

§ Lord Williams of Elvel
My Lords, does my noble friend agree that the capitalisation of LCR was seriously insufficient and that, in taking on this contract, it had no idea that the Eurostar revenues would be less than it had assumed? Have the shareholders of LCR written off all their liabilities or are they prepared to face up to the liabilities that may be consequential on the collapse of LCR?

§ Baroness Hayman
My Lords, as the House will be aware from the Statement of the Deputy Prime Minister in another place, we are in the middle of a 30-day period following LCR coming to the Government and explaining that it had indeed, as my noble friend pointed out, grossly overestimated the profit it would make from operating Eurostar services and that this had undermined the company's financing plans and asking the Government for an extra £1.2 billion to help bridge that gap. The Deputy Prime Minister made it clear that, although the Government were committed to contributing the £1.8 billion, a further £1.2 million was unacceptable. We are now in the 30-day period of seeing whether LCR can come up with another way of fulfilling its obligations under the development agreement.

§ Baroness Thomas of Walliswood
My Lords, I am sure the Government share our concern that the failure of LCR could lead either to the non-construction of the Channel Tunnel rail link or to only its partial construction. There is the further disbenefit that if it were not continued as far as St. Pancras, the whole development of that area of London would be under threat, including the contributions from the single regeneration fund and the private sector. Will the Government do everything they possibly can to ensure that the Channel Tunnel rail link is completed, even if that means doing it in sections? We must have at some 313 point a clear indication that the Government are committed to the project and will find a way of carrying it Out.

§ Baroness Hayman
My Lords, I note the comments of the noble Baroness. As I said earlier, we are looking very carefully—I know that London and Continental Railways is also looking very carefully—to see whether there is a solution to what is a grave problem. She is right to point out that there are a number of inter-related issues—this is not simply about links between Kent and St. Pancras—surrounding the CTRL, particularly the redevelopment and regeneration projects at Stratford and around Ebbsfleet. These are serious issues. I should make it clear to her, in reply to her question about building only part of the CTRL, that the Act and the development agreement both provide for a railway between St. Pancras and the Channel Tunnel. That is what we are talking about, and the Government are looking to LCR to come up with a proposal.

Lord Bruce of Donington
My Lords, following my first supplementary question, has my noble friend noticed the definite and deafening silence of the Opposition on this matter?

§ Baroness Hayman
My Lords, perhaps the noble Lord, Lord Brabazon of Tara, would like to intervene.

§ Lord Brabazon of Tara
My Lords, I was about to rise to my feet. However, in deference to the noble Lord, Lord Bruce of Donington, I waited until he had finished his question. I was rising as he rose, but I naturally deferred to a senior Member of the House like the noble Lord. Being, as we are, in the middle of this 30-day period, can she give an assurance that at the end of the period she will make a Statement to the House on the outcome of the negotiations? I can understand that perhaps noble Lords behind her would not welcome such a Statement. Can the noble Baroness also confirm that, of the £1.8 billion of government money that was promised to this project, at least a half of that was to improve the Kent commuter lines'? Therefore, if any alternative plan were put forward which did not improve Kent commuter lines, presumably that figure of £1.8 billion would be up for negotiation if not cancelled altogether?

§ Baroness Hayman
My Lords, when the Deputy Prime Minister made his Statement in another place he undertook to make a further report to Parliament when he had had a chance to consider any proposals that were put to him by LCR during the 30-day period. As the noble Lord will be aware, your Lordships' House had risen at the time that Statement was made and therefore it was not repeated. But we would be anxious that the House have the opportunity to discuss any further proposals.
The noble Lord asked about the Kent commuter lines. It is correct that the project has implications not only for links between Europe and London and indeed other parts of Great Britain; but there are also important 314 advantages in terms of commuting services and the regeneration issues.