The economic justification
14 In 2001, the Department conducted a new appraisal of the uncommitted costs of Section 2 and the associated benefits. The benefit/cost ratio on the then central case passenger revenue forecasts for Eurostar UK (produced in 2001) and excluding regeneration benefits and benefits from the future domestic high speed services was 1.4:1. Subsequent actual revenues have been below the 2001 central projection and also below the 2001 low forecast, at which the benefit/cost ratio was only 0.45:1.
15 The Department has not recalculated the cost/ benefit ratio to determine the effect of lower revenues. While revenues have dropped below the 2001 low case forecasts, the impact is not as negative as the Department's 2001 analysis projected. The lower benefits from lower patronage are offset by the reduction in the additional public sector support through the access charge loan largely due to the reduction in LCR's cost of capital. In the Department's judgement, domestic transport benefits, which should emerge in 2009, the year when domestic train services are planned to start using the Link will exceed the associated costs and improve the economics of the project.
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In 2004, Eurostar UK's passenger revenue was still below the 1998 and 2001 low case forecasts but grew by nearly 11 per cent in real terms, reversing a three-year trend of falling revenues |
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Source: National Audit Office analysis |
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16 To the extent that the economic case for infrastructure projects depends on regeneration benefits, the achievement of such benefits at the planned level is a key indicator of the success of the project. For the Channel Tunnel Rail Link, there are encouraging signs of the intended regeneration in the Thames Gateway and around the three international stations at St Pancras, Stratford and Ebbsfleet. The Master Planning Application for Stratford City has been approved and detailed planning applications are being prepared with a view to starting the development in 2006. LCR and its development partners have also submitted a Master Planning Application for the development at King's Cross: the consultation phase for the development has been completed and negotiations with the London Boroughs of Camden and Islington are underway. The London Borough of Camden has also granted planning consent for the £150 million redevelopment of St Pancras Chambers, the former Midland Grand Hotel at the St Pancras terminus. Outline consent has been obtained for the development at Ebbsfleet.