When Mark Bayley, the finance director of
& Continental Railways, talks about his job he doesn’t sound like other
FDs. He doesn’t describe the business in terms of shareholder returns or EBITDA.
Instead, he talks about the company where he has spent the last decade
delivering the UK’s largest engineering project since the Victorian era, like a
proud parent cooing over a precious child or an artist waxing about a new
‘I don’t know if I am ready to leave it all yet,’ says Bayley, who this month
saw the first Eurostar train leave St Pancras on the 108km channel tunnel link
that his company built.
‘It is rather daunting for me personally. For the last 10 years we have
worked on making the channel tunnel link a reality. It is going to be difficult
to adjust to life without it. It is amazing how all the bricks and mortar make
you want to be there, stay with it and see it through.’
Indeed, the sheer scale of the channel tunnel link project and the massive
effort required to deliver it is staggering. Delivering this high-speed railway,
that will enable passengers to travel from London to Paris in two hours, is an
engineering and organisational achievement that will linger long in the memory.
The 108km railway line cost £5.7bn and several thousand man-hours to build.
The tunnels and bridges that had to be built to allow the rail to take its
course are almost as long as the channel tunnel itself.
No mean feat
Succeeding in this massive task has been no easy feat. In 1998, just two
years after LCR had been appointed by government to build the link, the
company’s plans to raise the capital for the project via a flotation hit the
buffers, leaving the business on the brink of collapse. The state stepped in and
agreed to fund the project using government bonds.
It was agreed that the project would then be split into two sections, and the
soon-to-be-doomed Railtrack stepped in and said that it would purchase the first
section of the railway when completed, with an option to purchase the second
But in 2001 Railtrack revealed that it had hit the financial buffers, too,
and would be unable to meet its commitments. Eventually after another round of
restructuring LCR reverted back to the original plan where it would take control
of both sections of the railway link and St Pancras station.
‘It has been quite a rollicking ride,’ Bayley says. ‘We have had a set of
restructurings to rescue the project and we just never knew what the future
would bring. Just as soon as we had completed one deal with Railtrack, there was
an announcement that they were going into administration.’
Bayley has also had to fend of a hostile takeover attempt for LCR by banker
Sir Adrian Montague, and control a corporate structure so complex it would make
an actuary’s head spin.
LCR is owned by a consortium consisting of Rail Link Engineering, National
Express Group, French firm SNCF, EDF Energy and UBS. Over the course of the last
ten years the Virgin Group, SBC Warburg, Bechtel and London Electric have also
been in and out of the consortium. LCR in turn owns a subsidiary, Union
Railways, which manages the project. Then, of course, there is the project’s
financer, the government.
But despite all these distractions, Bayley, his fellow executives and the
contractors have somehow always found a way to keep the project alive, on time
and on budget.
‘The project has sort of been like a Roman galley. Below the decks you have
everyone rowing on, the contractors just carrying on with the programme and on
top you have all these mad scenes unfolding,’ Bayley says.
‘I think what has kept us on track is that there has been a very close loyal
team, and most of the team have been there for the last ten years. So there is a
huge level of collective memory, continuity and established working
relationships, which these large projects need.’
The complexity of the channel tunnel link delivery structure, however, is
something that Bayley believes was essential to LCR delivering the project on
time and within budget. A remarkable feat when one considers similar private
finance initiatives projects that ended in disaster, such as Metronet.
Bayley says the organisation of LCR meant that risk sharing was reasonable,
cohesion between contractors was improved and financing was secure. In effect
the channel tunnel link has been delivered using a new model for PFI.
‘LCR is owned by a collection of shareholders and the philosophy is that the
shareholding community should not be a contractor for the work. That means all
the contractors are secured aggressively in the open market and there is no
right to business.
‘We then structured precise risk-sharing arrangements and incentivised
contractors around targets, so they were highly motivated to control the costs
and risk. By sharing risk you also create this line of interest from the client
at the top, through the project managers and to the contractors.
‘We said we will give you a target and we will pay you all of your costs, if
you make the target. The contractors had to beat the target and were very eager
to meet it and work with everyone across the whole project,’ Bayley says.
He says the involvement of the government, as underwriter for the project was
also crucial to its success.
‘With the government backing the project there was always surety of funding.
If you say here is money for the next two years but not after that the project
stops and starts and there is all sorts of dislocation.
‘With this project the entities have had all the money they needed when they
needed it and so funding was not an issue in deciding how to run the job,’ he
Bayley played an integral role in developing these structures, and securing
government financing to drive the project. He says the focus on managing the
project through these structures has made his job unique as far as FD roles go.
‘As the FD of LCR, the issues have been much more about the managing and
squaring of the risks. The businesses within LCR have a large degree of autonomy
so this is not a conventional finance role. The things we have been doing are
funding, restructuring risk and that is a different set of skills.’
With the project now complete, Bayley’s pride at being involved is obvious.
‘For all the fuss that has been made about our project, we have built a big
asset that will be used and generate cash. One day I am going to be able to take
my grandchildren to St Pancras and say: “I was a part of that.”’
The 108km channel tunnel rail link has been completed, St Pancras has been
gloriously restored and Eurostar trains are moving between London and Paris in
just over two hours.
For Mark Bayley, the finance director of London Continental Railways, the
company that managed the mega-project, however, there is still plenty to do.
Now that the project is finished, the last (and significant) task facing
Bayley and his fellow LCR board members will be to restructure the company.
Currently the company consists of a railway line business, Eurostar, which runs
the trains that use the rail and a portfolio of property assets in the King’s
Cross and Stratford areas.
During the building of the railway, it was essential that these four
businesses were integrated in order to successfully deliver the tunnel link, but
now that the project is complete it may be better to split the company up
because the businesses are so different.
‘My main focus now is going to be to restructure LCR so that each of the
businesses can be put on a sustainable and economically sound footing,’ Bayley
Over the coming months LCR will be working closely with government, which
supplied the finance for the link, to decide on the best way to regroup the
businesses. One option will be to spin off the businesses in a multibillion
pound privatisation, either via the stock markets or by selling to a private
Bayley says LCR is in no hurry to complete the restructuring, but he hopes to
have agreed on the way forward with the Treasury by the end of March next year.
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