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Eurotunnel has been both a success and a disaster Discuss.

Euro Tunnel is the finest engineering achievement of the 20th century as well as one of the

most expensive white elephants in the history.

Construction of the Eurotunnel was the realization of a centuries-old dream to connect England

and France. It is probably the most significant international transport project since the Panama

Canal, and the largest project ever paid for entirely by private finance. Engineers have dreamed

of building a Channel Tunnel for at least 250 years which runs beneath the busiest shipping

lane in the world. Between the dream and the reality lay a dramatic and unimaginably complex

engineering project.

In 1996 the American Society of Civil Engineers identified the tunnel as one of the Seven

Wonders of the Modern World. In 1999, Channel Tunnel was awarded first prize amongst the

top 10 construction projects of the 20 th century by an international construction panel in the

United States.

The Channel Tunnel promotes the trading connection between UK and France and improves

living conditions by cheaper and faster transport for both sides. The construction as well thetunnel operation improves employment in the respective regions. For such a great advantage of

it, the project can be considered as a success.

But if we focus on the financial performances, we cannot express the same opinion.

The tunnel cost two times more to build than the most pessimistic original estimate. Together

with additional finance charges caused by the delays in completion, which meant that no

income was received despite all the money having been spent, the tunnel that should have cost

6 billion ended up to an estimated final cost of around 12bn. That meant that the revenue

needed to break even was two times more than projected.

Eurotunnels financial results have of course proved extremely disappointing, way below the

documented expectations of 1987-94. Once the trials of late opening and the November 1996

fire had been overcome, Eurotunnel achieved a turnover of around 600 million a year over the

period 1998-2008, and an operating margin of around 55 per cent. But turnover was way below

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the prospectus forecasts and after depreciation and financial charges; losses were severe,

averaging 137 million a year, 1998-2004, before exceptional items.

The volume of traffic is a fraction of what projected. Passenger and freight trains through the

tunnel are running at about a fifth of the projected numbers. The vehicle shuttles are running at

about a third of the projected numbers.

The tunnel expected to gain substantial income from the sale of duty-free goods at the

terminals. Duty free sales of alcohol and tobacco had always been a tremendous money spinner

for the ferry companies, making up a substantial part of their profits. But the advent of the

European Single Market spelt the end of duty free sales on journeys between two EU countries,

so the duty free shops at each end of the tunnel never provided the revenue that had been hoped

for.

It was clearly a misfortune for Eurotunnel to embark on a long construction process during a

time of relatively high inflation, and then commence operating when the rate of inflation fell

and prices became more stable. In such a situation, the weight of the debt burden remained

stubbornly in place, creating difficulties for the owners of capital as it became clear that

revenues were likely to be insufficient to service the debt.

With passenger and freight trains running at a fifth of the projected rate, passenger and freight

shuttles running at a third of the projected rate, duty free sales running at zero, stuck with debts

it could not afford to service and the capital cost of construction running at two times that

projected, the tunnel is an unmitigated financial disaster.