1.43 The restructured deal has secured the continued private sector operation of Eurostar UK and is likely to realise the completion of Section 1 of the Link during 2003. While LCR has a contractual obligation to construct the entire Link it does not, at present, have the financial backing from the private sector to ensure construction of Section 2.
1.44 LCR has access to considerable funds; these include the staged payments of direct grants to be paid by the Department, a right to issue further Government-guaranteed bonds and the purchase proceeds from Railtrack for Section 1 of the Link. These sums, however, are not sufficient to finance the construction of Section 2 and projected Eurostar UK losses. To ensure that there is the finance to satisfy its obligations, LCR must raise approximately £600 million of commercial debt, although the exact amount will depend on LCR's cash position at the time.
1.45 While LCR had to raise commercial debt to fund the construction of Section 1 it was able to do so because Railtrack guaranteed the debt. Similar support for Section 2 is not assured. Railtrack has not committed itself to purchasing Section 2, but does have an option to do so which it can exercise at any time up to July 2003. There are, however, a number of incentives for Railtrack to commit support to Section 2, including:
■ an upward adjustment of the access charges payable, giving it a greater rate of return;
■ a right to purchase a share of profits from the development of land at King's Cross and Stratford.
1.46 Railtrack has undertaken a due diligence examination of Section 2, with a view to establishing whether and on what terms it would be willing to exercise its option in 2001. The results have been shared with the Department and LCR and discussions between the parties are continuing. If Railtrack does not exercise its option to purchase Section 2, LCR will need to examine how it can raise all the funds needed to ensure completion of the Link. Until Railtrack's option expires in July 2003 or is surrendered earlier, LCR cannot sell Section 2 to any other organisation.