12 As part of the 1998 restructuring, the Department effectively gave Railtrack Group a guarantee that Eurostar UK would meet its obligations to pay charges for access to Section 1 of the Link. To avoid a call on this guarantee, the Department also put in place an access charge loan facility that LCR, as the owner of Eurostar UK, could draw on to pay access charges if all other sources of funds were exhausted. The Department capped the 1997 present value of the loan at £270 million (1997 prices, discounted at six per cent per annum), net of repayments and the Government's share of revenue from forecast project related property developments. When LCR bought out Railtrack Group's interest in Section 1, it acquired CTRL(UK) (formerly Railtrack (UK) Limited) together with the benefit of the guarantee covering Eurostar UK's track access payment obligations. The guarantee provided LCR the security it needed to borrow further funds from the capital markets.
13 Since the opening of Section 1, demand for Eurostar train services has grown rapidly, but passenger revenues still remain well below even the cautious forecasts made in 1998 (Figure 2). The current, central case, Eurostar UK revenue forecast suggests the Department could lend LCR about £260 million5 through the access charge loan (1997 present value in 1997 prices) through to 2051 and net of repayments and other receipts. Given the uncertainty surrounding Eurostar UK's revenues, current forecasts suggest that the loan support could range between 0 and £400 million6 (1997 present values in 1997 prices). The maximum is not much more than the amount estimated in 1998 using the Government's Downside forecasts, because LCR has secured savings through lowering its cost of capital. Following Railtrack Group's departure from the project, LCR replaced funds carrying Railtrack Group's agreed return with bonds backed by Government supported revenue. LCR cut its expected cost of capital from a weighted average of 8.9 per cent in 1998 to 5.2 per cent in 2003. By the end of the concession in 2086, LCR expects that it will have repaid fully its borrowings under the access charge loan facility.
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5 £400 million (a 1997 present value in 1997 prices calculated by discounting cash flows using the Government’s current discount rate of 3½ per cent).
6 0 and £650 million (1997 present values in 1997 prices calculated by discounting cash flows using the Government’s current discount rate of 3½ per cent).