The Channel Tunnel―an ex post economic evaluation

TheChannelTunnel—anexposteconomicevaluationRicardAnguera*StrategicRailAuthority,LondonSW1H0EU,UnitedKingdomAbstractTheforecastsunderpinningtheconstructionoftheChannelTunnellargelyandsystematicallyoverestimatedthetotalsizeandgrowthofthecross-Channelpassengerandfreightmarkets.Theshareofthecross-ChannelmarketscapturedbytheTunnelwasaccuratelypredicted.However,thiswasonlyachievedthroughacompetitivebattlewithferryoperators,whichresultedinreducedtariffs.Thecombinationofthesetwofactorsresultedinrevenuesmuchlowerthanpredicted.Forcompletelyseparatereasons,theconstructioncostsoftheTunneldoubled.ThecostbenefitappraisaloftheChannelTunnelrevealsthatoveralltheBritisheconomywouldhavebeenbetteroffhadtheTunnelneverbeenconstructed,asthetotalresourcecostoutweighsthebenefitsgenerated.Usershavegainedsig-nificantlyattheexpenseofowners(producers).Thelatter—bothferryoperatorsandtheTunneloperatorhaveincurredsubstantiallosses.Thesinglebiggestcomponentofuser
sgainhasnot,asoriginallyexpected,beenintermsoftraveltimesavings,butduetothetransferfromproducers.Thelonger-termevaluationoftheprojectconfirmsthepoorviabilityoftheinvestmentbothinfinancialandcostbenefitterms.Eurotunnelhasinrecentmonthsbeenthefocusofmuchmediaattention.IntheExtraordinaryGeneralMeeting(EGM)ofApril2004theshareholdersvotedtoreplacethemanagementwithanewFrench-dominatedExecutive.ProjectDAREwaslaunchedinOctober2004,withtheaimtoaddressthecompany
sdifficultsituation.ThedevelopmentsoverthenextfewmonthswillbecriticalforEurotunnel,giventheapproachingendoftheMinimumUsageCharge(MUC)periodinNovember2006andthestartoftherepaymentofjuniordebtfrom2007.
2005PublishedbyElsevierLtd.Keywords:ChannelTunnel;Forecasts;Appraisal1.ScopeThispaperdescribestheChannelTunnel
s(CT)turbulentpast,fromtheproblemsencounteredinthelate1950s,whentheprojectwasfirstseriouslyexamined,throughtotoday
strafficlevelsandfinancialviabilityissues.Ithighlightsthetroubleswiththeinitialprojectproposalsandcomparestheactualtrafficlevelswiththehistoricalforecasts.Thefinancialandcostbenefitappraisalsdrawontheanalysisandcomparisonofcostsandrevenuesandonthedetailedwelfareanalysis.0965-8564/$-seefrontmatter
2005PublishedbyElsevierLtd.doi:10.1016/j.tra.2005.08.009*Presentaddress:PasseigSagrera,16-26,08960SantJustDesvern,Barcelona,Spain.Tel.:[phone].E-mailaddress:[e-mail]hPartA40(2006)291–315fiesthescaleandeffectsofthelargedeviationsintheforecastingexer-cises.Itdoesnot,however,dealwithanypotentialmethodological,originaldatabase,orotherissueswhichmayhaveaffectedthehistoricalforecasts.Intermsofconstructioncosts,itidentifiesthescale,sourcesandeffectsoftheerrors(withregardstoprojectappraisal).Itdoesnotattributeoridentifycausesonthemethodological,socialorpoliticalaspectsoftheprocess.ThepapershowsthatthelargedebtaccumulatedbyEurotunnelisaconsequencefromthetransferfromowners(orproducers)tousers.Thecurrentissues(shareholdersrevolt,changesofmanagementandotherlegalbattles)areactuallyaboutwhichproducers—originalshareholders,banksorevenBritishandFrenchtaxpayers,shouldbearthedebtburden.2.Historicaldevelopments1957–1986TheideaofatunnelundertheEnglishChannelhasbeendiscussedforover200years.ThefirstfeasibleplanisthoughttohavebeendevisedbyAlbertMathieuin1802.HeenvisagedtwinboredtunnelsbetweenCapGrisNez(nearCalais)andEastwellBay(nearFolkestone),remarkablysimilartothepresenttunnelintermsofbothdesignandlocation.ThefirstattempttoconstructaChannelTunnelwasbyColonelBeaumontin1880,whichtheBritishGovernment—ledbyHisRoyalHighnessGeorge,DukeofCambridge—haltedto‘‘avoidanewelementofdangerthatwouldthreatenourverynationalexistence’’.1Thesenationalsecurityissuesandthelackofadequateengineeringtechniquespreventedtheprojectfrombeingtakenforwardfornearlyafurther100years(SlaterandBarnett,1957).2WithinacontextofimmensegrowthintrafficbetweentheUKandtheContinentaftertheSecondWorldWar,and,moreimportantly,withtherecognitionthattrafficwouldcontinuetogrowinsubsequentyears,successiveadministrationsduringthe1960sagreedthattheChannelTunnelprojectwasfeasibleandthatthemeanstoactuallycarryingitoutshouldbefullyexamined.SeriousmodernconsiderationoftheconstructionoftheCTcommencedin1957whenanAnglo-FrenchChannelTunnelStudyGroupwasestablished.In1960,analternativeChannelBridgeStudyGroupwassetupinParis.ThesesubmittedrespectiveproposalsinMarch1960andOctober1961forfixedlinksacrosstheChannel.InNovember1961theGovernmentssetupajointofficialWorkingGroupofFrenchandBritishOfficialstoexaminetheproposals.InJuly1963thisworkinggroupreportedinfavourofaChannelTunnel(MoT,1963),andinJuly1966,theFrenchandBritishPrimeMinistersannouncedthejointdecisionthatsubjecttofindingasolutionforthecon-structionworkonmutuallyacceptableterms,theTunnelshouldbebuilt.However,noneoftheproposalsreceivedwereconsideredacceptable.Anewcombinedgrouppresentedrevisedproposalsin1970andinMarch1971theBritishandFrenchMinistersacceptedthenewscheme.Arrangementsforthefina