1.24 While LCR was considering how to bridge the funding gap, it received LEK's report on future passenger demand for the Eurostar UK service. The analysis revealed that demand was strong but at levels lower than those forecast by LCR. Using these figures, Eurostar UK was expected to lose £750 million more in the medium term than LCR had forecast in its bid. The size of this expected loss put the second stage financing beyond LCR's reach and, in September 1997, LCR communicated these findings to the Department.
1.25 LCR submitted a number of options for taking the project forward, including the involvement of Railtrack in the construction and operation of the Link. Each option depended, in one way or another, on the Department increasing the level of direct grants, paying a revenue subsidy, bearing some Eurostar UK revenue risk or guaranteeing a long-dated LCR bond.
1.26 By late 1997, however, LCR had discarded all options that did not include bringing Railtrack into the project. Negotiations with Railtrack commenced, but in January 1998 LCR realised that a deal was unlikely. Close to insolvency, LCR abandoned the negotiations and publicly approached the Department with a request for £1,200 million6 of additional direct grant.