Q1 Chairman: Good afternoon and welcome to the Committee of Public Accounts, where today we are looking at the Comptroller and Auditor General's Report on Progress on the Channel Tunnel, which examines progress made in the Channel Tunnel Rail Link since the last PAC Report on this in March 2002. We welcome back to David Rowlands, the Department's Permanent Secretary, Mr Michael Fuhr, who is the Director of Major Projects, and Rob Holden who is the Executive Chairman of London and Continental Railways. You are all very welcome. Can I start by asking you, Mr Rowlands, to look at figure 11 on page 27. You will see there that the latest Eurostar revenue forecasts are even below the low case ones for 2001. Is that right?
Mr Rowlands: Yes.
Q2 Chairman: What is the likelihood then, Mr Rowlands, that they will be revised down again?
Mr Rowlands: We are looking at the moment at the revenue forecasts tore-forecast when LCR may need to access the access loan charge arrangements. I think it is too soon to say that they will be revised down again. We will have a clearer view at the end of the year.
Q3 Chairman: You do not know. Mr Holden, can you add anything to that?
Mr Holden: The revenue forecasts are continually being revised. I think you need to look at this project though, in terms of more than the revenue forecasts; it is a combination of issues. Together with other things that have happened since these forecasts were last produced-and the Committee reviewed the situation in 2001-a number of things have happened which have-
Q4 Chairman: You are not answering the question. What is the likelihood of these forecasts being revised down again?
Mr Holden: I think the likelihood is that they would be revised downwards and then reviewed again.
Q5 Chairman: The likelihood is that they will be revised downwards. Thank you, that is fine. Mr Rowlands, can you now please look at page 15 paragraphs 2.5 and 2.7 and please explain to the Committee why the Government, or rather the taxpayer, has underwritten every single pound of debt in this project?
Mr Rowlands: Because financially it was the most efficient way to structure a project that was in the private sector. What we ensured was that we did not underwrite all of the risk associated with the project; much of that remains with both insurers and with Bechtel, as you have seen from the NAO's Report.
Q6 Chairman The taxpayers are over a barrel over this, are we not?
Mr Rowlands: No, we are not over a barrel.
Q7 Chairman: Can you explain why not then?
Mr Rowlands: In the event that this project significantly overruns in terms of cost, for example a 20% cost overrun, the insurance market is out to Department for Transport and London and Continental Railways the tune of £215 million, and Bechtel is out to the tune of £100 million, as is well set out in the Report.
Q8 Chairman: Let us pursue these factors further. Can we look at the access loan charge, which is dealt with on page 34, paragraph 3.29. Can you explain to the Committee, Mr Rowlands, how much of the access charge loan will be repaid; or is it going to be just another subsidy from the taxpayer?
Mr Rowlands: As the Report says, the LCR expectation is that they will repay all the amounts they draw down under the access charge loan arrangements.
Q9 Chairman: Can you now please look at figure 20 on page 38? This is an important matter; it is the value for money assessment of the case for going ahead with section 2. Obviously, the economics of the project depend heavily on assumptions about regeneration benefits-do you accept that?
Mr Rowlands: Yes.
Q10 Chairman: So can we be confident about the numbers in this figure?
Mr Rowlands: If you look at the extreme right-hand side down the bottom, 0.7, that is the calculated benefit cost ratio for the low case, that is the case which includes a £300 million overrun on the original target construction costs. It is 0.7, but that does not include any benefits from domestic services. We believe that once those are included that that will take it above one. We will be looking again at this once the project is complete, but bear in mind that at Stratford, Ebbsfleet, King's Cross and indeed at Eastern Quarry, you have about 100,000 jobs tied to the arrival of this project. From memory, there are 18,000 homes and a lot of retail developments. It is fair to say that though this project depends in part upon its regeneration benefits, not just its transport benefits, those benefits are materialising, as the report sets out.