The Channel Tunnel Cost Benefit Analysis after 20 years of operations

Abstract

This paper builds on and provides an update on the ex-post economic and financial evaluation of the Channel Tunnel by Anguera (2006). The analysis considers now the 20 years of operations of the Channel Tunnel and updates the comparisons of historic costs, demand and revenue projections with the reality of the tunnel in period since it entered in service in 1994. The methodology used to undertake the transport CBA is largely based on the approach developed by Anguera (2006), but it considers now two cases; a first CBA is undertaken from the perspective of Eurotunnel, considering ET’s construction and operating costs, ET’s revenues and the estimated user and producer benefit’s and losses. The second CBA is a UK-side analysis, and considers the same elements as the former, but also includes British Rail’s required investments, HS1 related investments and through-tunnel railway services operating costs and revenues. In both cases, the Cost Benefit Analyses consider the residual values of the main assets involved. The updated transport cost benefit appraisal suggests that whilst the overall project results have improved significantly, with growing passenger and freight demand on the Tunnel, the total resource costs still outweigh the benefits generated. The financial appraisal confirms the poor viability of the investment, extent clearly illustrated by the 2007 financial restructuring that the project required. However, this financial restructuring appears to have set the company on solid financial grounds and it now generates sufficient operating profits to service its debt burden and, since 2009, Eurotunnel has paid out dividends to shareholders.