Transport delays ahead

Date: 30/11/1995

With projects facing conflicts in scheduling and unresolved questions over finance, Tim Jones reports on why the spectre of Eurotunnel is haunting TENs.

It was meant to be European policy on a grand scale.

A miscellaneous collection of cross-border road, rail, telecommunications and energy links costing up to 400 billion ecu would be pulled together and directed by a central authority.

Treating the projects as a whole would produce an effect far greater than its parts. Distances would be shrunk. National boundaries in the EU's single market would be lowered as the long sea-trip between Malmö and Copenhagen was reduced to a 15-minute drive and the disparate worlds of Brussels and London united with a two-hour high-speed train ride. Outlying areas of the European Union would be linked forever to the centre.

“The establishment of networks of the highest quality throughout the whole Union and beyond its frontiers is a priority task,” said the European Commission's 1993 White Paper on Growth, Competitiveness and Employment. “It will require a joint, massive and sustained effort on the part of the authorities at all levels and of private operators.”

Two years on and Transport Commissioner Neil Kinnock is a disappointed man.

“While welcoming the potential benefits - competitiveness, job creation and economic cohesion - many countries behave as if construction and funding are the job of someone else,” he said last week, as he unveiled a catalogue of delays in the EU's 14 priority transport programmes.

At their Essen summit in December last year, the Union's heads of state and government finally agreed on a priority list of major transport projects which deserved privileged access to the EU's budget.

The projects, which range from a new airport in Milan to a series of high-speed rail links, had to be cross-border and were, in the main, extremely costly. Put together, they are expected to cost 99.3 billion ecu, 41.5 billion ecu of which must be spent by 1999.

With the bulk of the financing expected to come from the private sector and member states, the Union took months to agree how to top up any funding shortfall. So far, out of the Union's institutions, the European Investment Bank has taken the lead with 4.8 billion ecu of loans already advanced.

The Essen summit agreed to set up an extra line in the budget to help finance feasibility studies and interest rate subsidies to help get projects off the drawing board and into construction. This 2.345-billion-ecu resource was not authorised until September and the entire 1995 allocation of 182.5 million ecu was approved in October.

Finally, the show seemed to be on the road. But the Commission is far from happy. While drawing up a progress report for the 15-16 December summit in Madrid, Kinnock's services found widespread evidence of delays in defining projects, conflicts in scheduling between member states and unresolved financing questions.

For Kinnock, this raises a terrible spectre. Member states must get their acts together “to avoid the mistakes made in the Eurotunnel project, which was not conceived and prepared in a genuine public/private partnership”, he says.

In September, just as EU finance ministers were allocating the budget for TENs projects, the operator of the rail tunnel between France and the UK, Eurotunnel, stopped paying interest on 9.4 billion ecu of its debt for up to 18 months to its 225 creditor banks.

With repayments on its debts alone totalling 800 million ecu a year, the company was simply unable to meet its obligations. The respite was intended to allow the company to restructure itself and reduce its debt to a manageable level, while at the same time it sred its main construction contractor for allegedly supplying faulty equipment.

The company's complaints seem to bear Kinnock out. Co-chairman Sir Alastair Morton recently blamed the French and UK governments for inadequate preparation for such a massive project. It was “assembled around a hole, like a Polo mint”, he said.

The intergovernmental deal that set the 12-billion-ecu project in train was done before the operator Eurotunnel was established.

Before any money had been raised, the concession to operate the tunnel was negotiated and signed, the commission to regulate the construction and operation of the tunnel was set up and the building contract was completed. “Immense stresses were built into the project from the start all because of the absence of the client,” said Morton.

For Kinnock, this exemplifies the need for a new type of partnership between the state and the private sector. Only then will the kind of success shown by the Øresund link between Denmark and Sweden be repeated.

Work has already begun on this 3.6-billion-ecu 16-kilometre tunnel and bridge link between Copenhagen and Malmö, which is due to be finished in 2000. Swedish and Danish construction workers have been working on the motorway approach since 1993.

Work began on one of the tunnels early this year and construction of the high bridge across the Flinte Channel is due to start this month.

A joint venture was formed between two state-owned companies after both parliaments passed a law in 1991. The scheme has its own joint project authority able to tackle obstacles caused by Swedish or Danish red tape, and is being built by Danish and Swedish firms. The project has benefited from one of the EIB's biggest loans for a TENs scheme so far, a 600-million-ecu loan approved in September.

But, some of the biggest projects on the priority list are not going as smoothly. The largest of all, the 22-billion-ecu high-speed train and combined transport link between Berlin and Verona is bogged down in differences between the member states involved.

The Brenner tunnel through the Alps, which is a key part of the project, runs through Austria but will mostly benefit southern Germany and northern Italy. Reluctant to foot a large part of the bill, Austria is awaiting the result of a study of the economic benefits of the proposal at the end of 1996 before a decision is even made on the plan.

Similarly, the southern high-speed rail link incorporating Madrid, Montpellier and Dax has been agreed in principle, but no date has been set for the work to start. The Betuwe conventional rail/combined transport line through the Netherlands looks set for a two-year delay because of planning problems.

Other projects are running into money problems already, partly as a result of delays.

The so-called PBKAL high-speed rail link between Paris, Brussels, Köln, Amsterdam and London is progressing as tracks are built and bidders to build the high-speed rail link between London and the Channel tunnel are shortlisted. The French high-speed rail link is already finished, but slow progress in Belgium and the UK, in particular, is contributing to an annual loss to the French railways of 300 million ecu. The eastern high-speed rail link between Paris, southern Germany and Luxembourg is expected to be 200 million ecu short in the coming five years.

To Nick Keable, of the International Road Federation, these problems were only too predictable. “These projects started as a collection of national plans and were melded together in the hope of creating a European network. They've drawn lines on maps and now they're trying to find the money,” says Keable.

Private financiers will seek a 10&percent; return on their investment and need the slack to be taken up by the public sector. “It's all very well saying it's fundable in theory, but it isn't,” he added.

The Community of European Railways (CER), which lobbies on behalf of the industry, has already tried to come up with imaginative solutions to the problem of financing the high-speed rail links.

In a paper drawn up for the Commission, the railway's lobby called for project conferences before the plans are drawn up to arrange financing.

The Commission insists that the rail projects should have open access to operators, but this means it is difficult to guarantee a rate of return to investors.

“If you have open access, you cannot guarantee a permanent return to private financiers because of the turnover of operators,” says Edel Clancy at CER.

Railway equipment manufacturers agree. Guillaume Duym, secretary-general of the Union of European Railway Industries, said: “We are also complaining that there are such great delays in the implementation of these projects. We should make them more attractive so the financial institutions will be interested.”

A grand strategy it may be. But as so often happens, when the crunch comes it is the financiers who call the shots.