London and Continental Railways

London and Continental Railways (LCR) is a company that was involved in the construction of High Speed 1 (HS1) in the United Kingdom. Originally established in 1994 as a private consortium to build HS1 under a contract agreed with the UK Government, it subsequently ran into financial difficulties and has been owned by the Department for Transport since 2009.

History

Creation

LCR was established in 1994 during the privatisation of British Rail. LCR bid for and won the contract from the UK government in 1996 to build and operate High Speed 1 (known then as the Channel Tunnel Rail Link) between London and the Channel Tunnel. As part of this deal European Passenger Services (EPS) and Union Railways, companies owned by British Rail, were transferred to LCR ownership, as well as key pieces of railway infrastructure including St Pancras railway station.

EPS was the British arm of the joint Eurostar operation, along with SNCF in France and SNCB in Belgium. LCR renamed EPS as Eurostar (UK) Ltd (EUKL). Union Railways had been developing plans for HS1 since before the opening of the Channel Tunnel and became the construction company of HS1 under the ownership of LCR.

The original shareholders of LCR were Bechtel (19%), Warburg (19%), Virgin (18%), National Express (17.5%), SNCF (8.5%), London Electricity (8.5%), Arup (3.5%), Halcrow (3%) and Systra (3%).^[1] As part of the 1996 contract, LCR was to finance and construct HS1 itself, funding the project from income received from the Eurostar operation. LCR also planned to raise additional capital from a partial stock market flotation once the project was underway.^[2]

Financial problems

In January 1998 LCR ran into major financial difficulties after finding that income from its share of the Eurostar operation was not at the level it expected. It blamed the lower level of passenger growth on disruption caused by a fire in the Channel Tunnel in November 1996 and the growth of competing low cost airlines. LCR's planned flotation, which had already been delayed, was aborted. With the entire HS1 project in doubt, LCR appealed to the government for help.^[3]

Government support

To enable the project to continue, LCR was allowed to issue £3.7bn of private bonds, which the government pledged to guarantee. In return the government gained a percentage of future profits from the operation of HS1 once completed, as well as a golden share in LCR. As part of the deal LCR was forced to appoint a management contract for EUKL. This was won by Inter-Capital and Regional Rail (ICRR), a consortium of National Express (40%), SNCF (35%), SNCB (15%) and British Airways (10%). The contract was to run from 1998 until 2010.^[4]

Following the access to finance, LCR was able to begin the HS1 project. Rail Link Engineering (RLE) was appointed to design and engineer HS1. RLE was a group made up of the four engineering companies involved in LCR; Bechtel (50%), Arup (19%), Halcrow (17%) and Systra (14%).^[5] In addition, Railtrack was brought in to the project by the government and agreed to purchase HS1 from LCR once complete.

The reduce the risks surrounding the project, the contruction was split into two phases. Section 1, from the Channel Tunnel to Fawkham Junction in Kent, was to be managed by Union Railways (South) under the control of Railtrack, who committed to purchase Section 1 from LCR once complete for the cost of its contruction. The more complex part, Section 2 from Fawkham Junction to London St Pancras was to be managed by Union Railways (North). Railtrack also purchased an option, to be exercised by 2003, to control Union Railways (North) during construction and acquire Section 2 once complete. With the completed HS1 in Railtrack's ownership, EUKL would then pay track access charges to use the line.

Railtrack crisis

Following a series of rail accidents and a subsequent share price collapse, Railtrack announced in April 2001 that it would not take up its option to project manage and then purchase Section 2. Instead, Section 2 would be owned on completion by LCR, with Railtrack owning Section 1 as well as being responsible for operating both sections.^[6]

In October 2001, Railtrack was placed into administration with debts of £7.1bn and in October 2002 its assets were transferred to the newly created 'not for profit' company, Network Rail, whose debts were guaranteed by the government. LCR purchased Railtrack's interest in Section 1 for £295m, meaning that both sections would once again be in LCR's ownership. Network Rail agreed to pay LCR £80m for the right to operate and maintain HS1 on LCR's behalf once complete.^[7]

High Speed 1 completion

Section 1 of HS1 was completed in September 2003 and handed over from Union Railways (South) to LCR.

In March 2006 LCR shareholders rejected a takeover bid led by Sir Adrian Montague. Shortly afterwards the Office for National Statistics reclassified LCR as a public corporation due to LCR's reliance on government funding and the resulting high levels of influence the government enjoyed over the company.^[8]

In August 2006 LCR put forward a proposal for High Speed 2, a domestic high speed line from London to Scotland costing £12-19bn.^[9]

HS1 was finally finished in November 2007, when Section 2 was completed and handed over by Union Railways (North) to LCR.

Nationalisation

In June 2009 the Department for Transport took direct ownership of LCR for a nominal price. This was possible due to the company's dependence on £5.1bn of government-guaranteed debt, and the government's special share in LCR giving it a wide range of control over the business.

The government stated it planned to sell off LCR's assets, such as EUKL and HS1, as individual companies to recoup some of the large amounts of government money paid to LCR since 1998.^[10]

Eurostar restructuring

On 31 December 2009 EUKL was renamed Eurostar International Limited (EIL). On 1 September 2010 the 3 national Eurostar operators merged into a single company with a single management structure. Follwing this change, the ICRR management contract for the UK business was terminated.^[11] All Eurostar assets were transferred to EIL, with LCR's holding in the new company becoming 40%. The remaining shares were held by SNCF (55%) and SNCB (5%).^[12]

High Speed 1 sale

In November 2010 a 30 year concession to own and operate HS1 was sold to a Canadian consortium of Borealis Infrastructure and Ontario Teacher's Pension Plan for £2.1bn.^[13]

Current operations

LCR is now predominently a railway property development company. It is involved in regeneration projects at King's Cross Central and Stratford City, which when eventually complete will be sold. The government has stated that it intends to hold on to LCR's 40% stake in Eurostar International Limited for now, but may re-evaluate its ownership in the future.^[14]

See also

• High Speed 1
• High-speed rail in the United Kingdom

References

External links

• London and Continental Railways website