Q71 Mr Williams: We have ended up with a situation where inflation estimates have been grossly under-estimated and inflation being much higher, and with the revenue being over-estimated; the Government is piggy in the middle and the taxpayer is going to pick up most of the bill.
Mr Rowlands: I do not believe that, I could be wrong, that this project will substantially overspend, but if it does do so then the Government is not piggy in the middle. As I said earlier, for a £600 million cost overrun the insurance market will pick up £215 million and Bechtel will pick up £100 million, so we have laid off significant risk on to the private sector.
Q72 Mr Williams: What is the maximum the taxpayer could be at risk for?
Mr Rowlands: Above £600 million, the taxpayers are in for every last penny because this is a layered arrangement and the bill was up to £600 million; after that the insurers would have fallen away, but there is no evidence that this project is going to overrun to the extent of 30% or 40%. We have reached a point where it is well over 80% complete. The spend to go is only measured now in hundreds of millions against a total spend of £3 billion or so. I do not think we face that risk. The challenge is to keep a grip on it at this stage to get it finally delivered at the best cost we can.
Q73 Mr Williams: How can you say there is no way? After all, the reason that the inflation figures were altered was because they had been over-estimated previously, and that was a relatively short time ago. We are talking about revenues up to 2050. How can you say there is no way it will exceed that ceiling?
Mr Rowlands: Forgive me, I was talking about the cost of building this project. This project will complete with Eurostar inter-service into St Pancras in 2007, so there is not much more to be spent in terms of simply building the project. The risk beyond that-you are quite right-relates to performance of Eurostar itself. That is to do with its passengers and its ridership.
Q74 Mr Williams: Mr Holden, you made the point about 7 July. You had had 15% growth prior to that but now there is no growth. Can we look back to 9/11? What was the pattern then, and how did it change? Did we then suffer a significant change in revenue as a result of that, and has it recovered; and, if so, to what extent has it recovered? In other words, what I am trying to get at is how temporary or permanent you calculate the impact of 7 July to be.
Mr Holden: The year 2000 was a record year for Eurostar revenues. The first eight months of 2001 were showing a reasonable increase over 2000. In real terms we are not yet back at those levels, so the recovery period is very long indeed. Mr Rowlands referred previously to the low-cost airlines. We find that when people move away, they have now a greater number of alternatives, so the task of recovery has been difficult for 2001 and will continue to be so.
Q75 Mr Williams: In terms of your latest projections, what adjustment have you had to make to them? Could you quantify the adjustment you have had to make in forward projections as a result of 7 July?
Mr Holden: The increase that we expect from section 2 will be about the same as was previously envisaged, but we are working from a lower base, which I would say was probably between 15% and 20% lower than we would have expected without some of these major extraneous events.
Q76 Mr Williams: Is that short term or long term?
Mr Holden: It takes a long time to recover from that.
Q77 Mr Williams: So 20% is what, in financial terms, in revenue?
Mr Holden: It is £40 million a year.
Q78 Mr Williams: As you say, that could be for a very long period ahead. If it were for 10 years, it would be £400 million.
Mr Holden: You would get recovery over that period.
Q79 Mr Williams: Yes, but recovery is never to the original path, is it? This is what I am getting at. It is unfair because none of us knows what is going to happen in the future, but the £40 million has now put you on a new growth path and you have now different lines of anticipated revenues, which are going for a long period to be £40 million a year or thereabouts out of what you have estimated. So the £400 million over 10 years, just on the revenue side, makes your £600 million not look as improbable as you were trying to make it sound, Mr Rowlands.
Mr Holden: One also has to look at the associated costs with that; so the net impact is considerably lower than what you would imply from that analysis. Also, as I said to one of the earlier questions, we cannot look at the revenue forecasts in isolation from other events. In particular, the cost of financing this project through the changes that took place in 2001 and 2002 have had a substantial beneficial impact, as the National Audit Office brings out. Those things combined bring you to the conclusion, which the NAO did, that the expected burden on the taxpayer is little different than it was in its previous report four years ago.
Mr Rowlands: I think we are talking about slightly different hundreds of millions of pounds. I was talking about a potential cost overrun and trying to lay the risk off on the construction costs of the second section of the high-speed railway link. That will be done and dusted by the time we are into 2007. Whatever that cost is eats into the cash that London and Continental Railways have. Your £400 million, if that is what it is, because the revenue line has been depressed, is a problem going forward, and at that point may impact on the point at which LCR have to access the access charge loan agreement, and that is the work we have been forecasting at the moment and what I promised Mr Clark the details of once we have them.
Q80 Mr Williams: The third imponderable in the calculations, as has been referred to previously, is the regeneration benefits; but, as Mr Davidson said, by the time the development work related to preparation for the Olympics is taken into account we are never really going to be able to arrive at any meaningful figure, are we?
Mr Rowlands: The biggest impact in terms of jobs is at Ebbsfleet. I do not think the arrival of the Olympics has any material impact in terms of what happens at Ebbsfleet and I think it is an irrelevance. It may be difficult to disentangle Stratford, but I am sure we can. I do not think it will have any impact in terms of Eastern Quarry in Kent, and I think the impact on King's Cross is probably limited as well, so I think it is do-able.