1.38 The track access charges payable to Railtrack by Eurostar UK between 2003 and 2010 are subject to a revenue sharing agreement. If Eurostar UK's revenues are greater than forecast in the LCR Management Case, the charges it will pay to Railtrack will be increased. If Eurostar UK's revenues fall short of the LCR Management Case, the charges will be reduced. The amount of revenue sharing is subject to a cap and collar and is on a sliding scale, differing according to whether Railtrack exercises its option to purchase Section 2 of the Link.
1.39 Under its licence, Railtrack is prohibited from operating train services and so could not take over the operation of Eurostar UK. This limitation compelled LCR to separate the Eurostar UK business from the construction and operation of the Link. This separation aligned with the Department's objective that Eurostar UK should be operated under new management arrangements. LCR's solution was to appoint a separate train operating company. In 1999, at the conclusion of a competition between ICRR and Virgin Group Limited, the former was appointed to operate and manage Eurostar UK, which will remain under the ownership of LCR. ICRR's shareholders are listed at Figure 9.
1.40 ICRR agreed to operate and manage Eurostar UK until 31 December 2010 in return for a management fee of two per cent of turnover, equating to some £3.7 million in 2000. There is also a risk sharing mechanism based upon an operating cashflow bid by ICRR. This is distinct from revenue risk because ICRR can mitigate revenue shortfalls by cutting costs, something it achieved in 1999 and 2000 (see Figure 10). If Eurostar UK cashflow runs below ICRR's bid line, ICRR must share the downside risk with LCR. Payments by ICRR to LCR are capped at £100 million over the life of the contract and limited to a maximum of £20 million in any one year, subject to any payment obligation greater than £20 million being carried over to the following year. In 2000, Eurostar UK cashflow was below the bid line to the extent that ICRR had to pay £2.1 million to LCR. There is also a sharing of the upside, capped at £250 million over the life of the contract. Nevertheless, while LCR has transferred revenue risk to other parties, the majority of the risk has been retained (see Figure 5).