Brussels, 13 May 2009
London & Continental Railways (LCR) is the developer of High Speed 1 (HS1), the high-speed rail link between London and the Channel Tunnel, which was delivered in November 2007. LCR is also the owner of Eurostar (UK) Limited (EUKL), which operates the Eurostar train service in the UK.
The development of HS1 required State guarantees in order to secure private funds. The Commission had previously adopted seven separate state aid decisions to approve the various packages. These arrangements have exposed the UK government to a range of long-term guarantees and liabilities provided to LCR and its businesses (HS1 infrastructure, land development and EUKL). They have led to very high access charges which could constitute a barrier to new entrants on the market and have proved to be financially unsustainable.
The UK authorities notified the operation with the aim of establishing each of LCR's businesses on a sustainable commercial and financial basis and to bring these long-term guarantees and liabilities to an end. It is also intended to remove the need for ongoing public sector support and to encourage competition for international services in the light of the opening of the market in 2010.
The Commission considered that the operation involves State aid, and involves two different aspects which have to be distinguished for assessing their compatibility with the common market.
On the one hand, the operation consists in re-organising the financing of HS1 infrastructure, by assuming all of LCR’s debts. In return, the various guarantees granted to LCR will be removed. All infrastructure activities will be consolidated into a single entity which will be sold. Infrastructure and transport operations will therefore be unbundled. The concession period for HS1 will be significantly shortened. The access charges will be revised and significantly reduced.
The Commission verified that these measures are designed to promote the execution of an important project of common European interest and considered that the financial re-organisation of LCR complies with Article 87(3) (b) of the EC Treaty.
On the other hand, the operation involves the restructuring of EUKL by recapitalising the company in particular to allow fleet replacement. All guarantees benefiting to EUKL will be removed and relations with the infrastructure activities will be established on a commercial basis at market rate.
The Commission assessed that the restructuring plan complies with the prescription of the rescue and restructuring guidelines. In particular, the Commission made sure that the restructuring involves sufficient compensatory measures in favour of possible competitors. To this extent, the Commission regarded positively the unbundling of operation and infrastructure activities and the future significant reduction of access charges. As a result, the Commission declared EUKL restructuring compatible with Article 87(3) (c) of the EC Treaty.
Finally, the Commission decision includes certain commitments of the UK authorities to ensure the proper monitoring of the whole operation. The UK authorities have agreed to discuss with the Commission a list of independent financial advisers to assist the Commission in the monitoring of the present decision. The UK has also committed to undertake the application of the so-called "one time last time" principle preventing granting additional restructuring aid in the future.