Billions of pounds of taxpayers' money will be at 'substantial risk' for years because of the way deputy prime minister John Prescott's bail-out of the proposed high speed Channel Tunnel rail link was structured, the Public Accounts Committee have warned.
The deal, involving a government guarantee backing a £4bn bond issue by London and Continental, was needed to avoid the collapse of the firm when Eurostar revenues proved insufficient to enable it to raise the cash needed on the market.
The MPs said that in addition to the bond guarantee, arranged when Prescott was in charge of Transport, it is likely more taxpayers’ money will be needed to keep the scheme afloat.
The PAC report said: ‘In deciding to restructure the deal rather than pull the plug, the department put in place complex arrangements that will expose the taxpayer to substantial risk for many years to come.’
This happened because the original investors were not required to put in enough risk capital, the committee said.
It meant the department was not in a position to insist shareholders, who had already awarded themselves £90m in contracts, must take responsibility for the project’s near collapse.
MPs discovered that under the new deal subsidies will be required if Eurostar continues to perform poorly and the department was unable to state when the company would start repaying loans.
And they complained there was no proper assessment of the financial benefit resulting from expected financial regeneration in the Thames Gateway area and East London as a result of the project.
The report lead immediately to warnings that there is a danger transport secretary Stephen Byers is falling into the same trap in his part privatisatin of London Underground.