Iron legacy

9 May 2013

ONE OF Britain’s most formidable political  gures of the last century died last month. Margaret Thatcher’s legacy to the British tunnelling industry is sure to divide opinion in the same way her entire political career has.

During Thatcher's time in of_ ce Britain, together with France, completed a fantastic engineering wonder, the Channel Tunnel crossing. It is still the world's longest undersea tunnel and brought true an idea that had been dreamt of by engineers for more than 200 years. Thatcher revived the notion of building a crossing after a 1975 attempt was abandoned due to costs. But she refused to hand over any Government funding and instead championed the project as the first real example of private business's power to deliver public infrastructure. While the high speed trains racing under the English Channel are proof of the private sector's ability to build infrastructure, the resulting near financial collapse of funder and operator Eurotunnel stands testament to the challenges of making a major capital investment bring the necessary returns in ticket sales.

After refusing funding, Thatcher, with her French counterpart Francois Mitterrand, launched a working group to seek a privately funded project. The winning proposal was a rail tunnel based on the failed 1975 project.

In 1987, Eurotunnel went public to raise funds for the project. The company told investors that building the tunnel would be relatively straightforward and that 10 per cent "would be a reasonable allowance for the possible impact of unforeseen circumstances on construction costs." In reality, those attending the British Tunnelling Society monthly talks would learn, the costs were expected to well exceed the proposed budget.

Once built, the real cost of the project was double the forecasted costs in constant dollars.

According to the authors of 'Delusion and Deception in Large Infrastructure Projects', the misinformation about costs and risks served the purpose of getting the project started. From the 1987 IPO until cost overruns hit the project one and a half years later, share prices more than tripled.

Then they fell by two thirds and, when it became clear that revenue projections were as biased as cost forecasts, by another two-thirds.

In 1995, Eurotunnel stopped interest payments on its loans and began a decade-long, tumultuous process of financial restructuring from which it did not recover until 2007. The intended flagship of privatisation became a scare story for business and set back the process of infrastructure privatisation by at least a decade.

Despite these shortcomings, Thatcher's private funding solution succeeded in building a tunnel where public funded schemes had failed. Arguably, Thatcher's legacy to the tunnelling industry is the world's longest undersea crossing.

Chairman and chief executive officer of the Eurotunnel Group, Jacques Gounon said, "Margaret Thatcher's vision was a driving force behind the building of the Channel Tunnel, one of the most iconic infrastructure developments of the 20th Century"