In addition to grants and guarantees of access charges, the Government has agreed to lend money to LCR directly

2.9  Government grants of £2,014 million for the construction and operating costs of the entire Link have been agreed. Capital Grants of £1,619 million are payable on the achievement of set construction milestones. In addition, Domestic Capacity Charges totalling £395 million will be made to secure capacity on the Link for domestic passenger trains for a period of 17 years. These grants are expected to be reduced by land rental payments to the Government from 2030 worth some £266 million. Such land rentals are, however, dependent on the ability of Eurostar UK to generate sufficient passenger income to meet them.

2.10  Like domestic train operators, Eurostar UK currently pays access charges to Railtrack for use of the existing track from the Channel Tunnel to Waterloo. Moreover, Eurostar UK also has to pay usage charges to Eurotunnel. Until 2006, the usage charges are payable irrespective of the actual use made of the Tunnel. This means that, until passenger numbers exceed between 10 and 12 million a year, Eurostar UK will continue to pay a minimum charge to Eurotunnel. Such charges, which at present constitute some 35 per cent of Eurostar UK operating costs, have been guaranteed by the Government since the opening of the Tunnel.

2.11  Eurostar UK will be required to pay access charges to Railtrack for the use of the new track and stations. These access charges are designed to recover operating costs and to provide Railtrack with a rate of return on the target construction cost of the Link, taking into account the Government grants received, the ongoing cost of servicing borrowings and expected revenue from domestic train operators using the Link. Access charges, and as a consequence the rate of return, will be higher if Railtrack opts to build both Sections of the Link and are also subject to variations in Eurostar UK revenues between 2003 and 2010.

2.12  To give Railtrack an assurance that it will receive a minimum income stream on its investment, the structure of the deal also involves separate arrangements whereby the Government has guaranteed access charges payable by Eurostar UK to Railtrack for a period of 50 years from the scheduled opening of Section 1 in 2003. If, for example, Eurostar UK becomes permanently unable to pay access charges, the Government will have to pay. In addition, the Government will make top-up payments if the International Rail Regulator reduces the level of access charges paid by Eurostar UK. In the event that Eurostar UK is unable to pay access charges, the guarantee would be fulfilled in practice by the Department lending LCR additional money through an access charge loan facility (Figure 13).