The E.U. has agreed to allow the U.K. to bailout London & Continental Railways, owner of High-Speed 1
On Wednesday, the European Commission approved £5.69 billion in aid by the government of the United Kingdom for London & Continental Railways (LCR), the private owner/operator of High-Speed 1 (HS1). As writes Railway Gazette, “Each of LCR’s businesses will now be established on a sustainable commercial and financial basis, bringing the long-term guarantees and liabilities to an end and removing the need for ongoing public support.” But the U.K.’s action is more specifically designed to privatize what should be public infrastructure, and allow corporations to profit from a project whose finances have been insured from by the start by the British government.
HS1 opened its second and final phase to Eurostar trains in 2007, reducing travel time between London and Paris from 3h to 2h15, providing a link to Olympic sites for London 2012 and regeneration areas in the east side of the city, and redeveloping the St. Pancras terminal. At a cost of £5.8 billion, it is England’s first new main line since 1899 and the first true high-speed link in the country’s history. Its 109 km are the most valuable in the British rail system.
LCR was selected to construct the link between London and the Channel Tunnel in 1996, two years after the Eurostar made its first journey between England and the continent. For more than a decade, the yellow and white trains were significantly faster in France and Belgium than in the U.K., where they were constrained by the limits of ancient track. HS1 played an important role in moving England into the high-speed mainstream. But almost as soon as the project began, what was supposed to be a privately-sponsored project turned into a boondoggle as the British government was forced to guarantee £1.6 billion of bonds. By 2006, the government was supporting £3.7 billion of bond releases, making it the defacto owner according to the Office of National Statistics. Yet the private corporations that had invested in the line — including National Express, UBS, EDF, and Bechtel — retained their shares, giving the government decision-making ability but not potential profits.
Europe’s agreement this week will allow the government to divest itself of its investment in HS1 by canceling the debt of LCR, at a cost of £5.69 billion. Remember that the project itself only cost £5.8 billion to build. Now that the line has been built, the agreement will force LCR to split into three operations: an infrastructure branch, owning the right-of-way and tracks; a Eurostar branch, owning the British portion of the high-speed service; and a property branch, owning St. Pancras and other holdings along the line. The E.U.’s decision supports its neoliberal model, which unfortunately rejects the quite successful government-run railway system that has worked well in mainland Europe for decades and instead adopts the privately-run mess that has failed in the U.K. ever since John Major privatized British Rail in 1993. Mainland countries are on their way in that direction as well, opening rail links to international competition in 2010 and national competition in 2012.
Unfortunately, the U.K.’s decision to buy out its share of HS1 will simply perpetuate the problems that result when governments make public infrastructure private. Not only have taxpayers essentially paid for this entire project with their own funds, but they now will be giving profits to private corporations running the trains and the track. This comes in direct opposition to what happens in France and Belgium along the same Eurostar line. There, the government owns both shares in Eurostar and the tracks themselves, meaning that any profit resulting from their use goes back into the system, rather into the pocketbook of some CEO. A much better equation, if you ask me.
But what’s worst about this situation is that the U.K.’s government tried forcing private companies to pay for this line themselves, but they were incapable of doing so; the line was only completed after the government backed up their debt. Wednesday’s action allows private corporations to make an easy profit from a public investment.
This, unfortunately, is the face of so-called public-private investment today; huge corporations exploit the infrastructure needs of nations, canoogle the government into paying for new projects in round-about ways, and then put all of the profit in private hands. What a shame! I hope that we can show more judgement in decisions we make about American high-speed rail investments.