The report argued that if train company Eurostar failed to achieve passenger, and therefore revenue, targets, the government would be required to pay up to £1.2bn in the form of long term loans – government guaranteed bonds – to cover Railtrack access charges for the new London to Folkestone line.
This was the third NAO report in recent months to expose financial risks caused by over-ambitious customer numbers – predicted visitor numbers for the Dome were subjected to similar criticism by the government spending watchdog.
Jeremy Colman, assistant auditor general at the NAO said: ‘If Eurostar UK continues to attract fewer passengers than forecast, the economic case [for the link] collapses.’
The Department of Environment, Transport and the Regions had originally calculated benefits of £3bn for a public sector contribution of £2bn.
But the NAO’s own calculations showed the DETR’s assumptions were ‘debatable’ and the economic benefits of the link would be marginal.
The report said the DETR had taken the unusual step including an estimate of £500m in regeneration benefits in its value for money assessment.
With the absence of economic benefits the report concluded that the justification of the link relied heavily upon wider policy benefits of the project seen by the government such as national prestige.
The Public Finance Initiative contract to the build the link and run the UK arm of the Eurostar service was awarded to London & Continental Railways in February 1996 but was re-negotiated in 1998 after the near collapse of the deal.
The link, which cuts through the heart of Kent and terminates at Kings Cross, London, is expected to be completed by late 2006.
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