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The Channel Tunnel is a 50.5 kilometre under water rail tunnel linking the United Kingdom to northern France. Predictions before the construction of the Channel Tunnel mainly and methodically overestimated the scales of the construction costs and the enlargement of the number of cross channel passengers and freight markets.

Anguera, in his paper, stated that “the construction cost of the tunnel has been doubled” and “cost benefit appraisal of the Channel Tunnel reveals that overall the British economy would have been better off if the Tunnel had never been constructed, as the total resource cost has been greater that the benefits generated” (Anguera, 2006).

As mentioned in the history of the tunnel, the idea of building a tunnel between the UK and France started over 200 years ago; therefore, there have been different types of analysis previously. A large amount of research had been carried out in the last 25 years prior to the construction of the tunnel. This thesis will investigate four major ex-ante analyses and one economic evaluation after the tunnel has been built and operated for a few years; also there will be a comparison of the studies.

Proposals for a Fixed Channel Link (Ministry of Transport, 1963) 3.3.1

On 17th November 1961 both governments decided to work on a report about a fixed tunnel or bridge link between the two countries. They needed to understand if the project

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was “technically adequate and practicable”. They worked on “Traffic, technical problems and matters of international law, costs, economic implications and financing” (MoT, 1963 report p 1). The base year for this study is 1969 and the discount rate is of 7% for 50 years until 2019.

The Channel Tunnel: A United Kingdom Transport Cost Benefit Study 3.3.2

(Coopers & Lybrand Associates Ltd., 1973)

This report shows the cost benefit analysis for a double track rail facility from Cheriton near Folkestone to Sangatte near Calais (C&L, 1973, p 14). Their assumptions for the growth rate of traffic and revenue are:

Central Case % p.a. Low Case % p.a. 1991 - 2000 5 3.5 2001 - 2010 3 1.5 2011 - 2030 1 0.5

In this report five sets of costs and benefits have been calculated: 1. The UK share of the tunnel capital costs.

2. Other infrastructure costs added because of the tunnel.

3. The British owned transport companies’ loss as an outcome of the tunnel construction.

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4. The net benefits to passengers’ resident of the United Kingdom from the improved service that the tunnel will produce (fares, journey time reduction and extra service frequencies).

5. The reduction in freight costs that the tunnel will create in the interests of the UK (C&L, 1973, p 1).

The base year for this study is 1973 and the discount rate is of 10% for 50 years until 2030.

The Channel Tunnel and Alternative Cross-Channel Services (Channel 3.3.3

Tunnel Advisory Group, 1975)

This report is produced by the Channel Tunnel Advisory Group presented to the Secretary of State for the Environment in 1975. They have calculated just the UK’s share of the project and chose a 50% share for most of the investments and revenue. The report shows the cost benefits of the tunnel itself against dependence on ferries and also a tunnel with a development of the current air and ferry services (CTAG, 1975 pp 28-29).

The base year for this study is 1973 and the discount rate is of 10%. The appraisal period is 50 years until year 2030 (CTAG, 1975).

Fixed Channel Link Report (UK/French Study Group, 1982) 3.3.4

The Department for Transport joined with the French government to build a UK/French study group and calculated a broad range of possibilities for an extra service for the

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Channel market. This is the main study that resulted in the construction of the tunnel with three scenarios: A, which favoured the tunnel; B, the base case and C, which favoured the improvement of the existing services (DOT, 1982, p 18).

They calculated all the benefits and costs for:

 Single 6 metre rail tunnel

 Single 7 metre rail tunnel

 Single 7 metre tunnel with vehicle shuttle facilities

 Double 7 metre rail tunnel with vehicle shuttle facilities

 Road bridge

 Road bridge and 6 metre rail tunnel

 Composite scheme.

They made four assumptions for each of the projects to which the various scenarios related:

 Traffic forecasts

 Capital costs and finish dates

 Size and utilisation rate of ferries for the future

 Costs of aviation. (DoT, 1982, pp 80-81)

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The base year for this study is 1981 and the discount rate chosen is 7%. However for each option there are different construction times and appraisal periods. In Table 5 the closest options to the actual project have been selected.

The Channel Tunnel; an Ex-Post Economic Evaluation (Anguera, 2006) 3.3.5

There is one study carried out after construction of the tunnel, in which Ricard Anguera outlines his calculations of the economic evaluation of the project. He concludes that the project was not viable and the tunnel should not have been constructed. His approach and data will be discussed in this thesis.

He studied a short term appraisal until the year 2003 and also forecasted the benefits of the tunnel until the year 2052. He mentioned two scenarios:

1. If the current debt and size of the tunnel remains the same, therefore the market should grow by 10% to achieve a positive NPV; but the capacity of the tunnel is not enough for that.

2. If the whole tunnel debt is written off, the tunnel can compete with ferry companies and will be able to achieve a £2billion NPV (Anguera, 2006 p 313).

The base year for the study is 2004 with the discount rate of 3.5% as in the HM Green Book and the final appraisal period of 2003 for a short version and 2052 for a longer version.

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3.4 Comparison

The comparison of different CBA’s is difficult because there are different approaches and methods that researchers have used for their different studies. However, Table 5 shows the summary of former tunnel CBA approaches and differences. In addition there have been differences on appraisal period, forecasted traffic, difference in price base etc. Some of these differences are because of the time period when the studies were carried out; for instance, the discount rate varies at different times. Some differences are because of different assumptions and some are because of different approaches that have been used in each study.

Table 5 shows the detailed comparison of the older studies. As can be seen in the table there are significant differences between the methods of CBA calculation in different studies. Some of the differences are obvious such as base year and construction period but some are strangely different such as taking different impacts into account. Some of the studies calculate the producer’s loss and some include the “avoided investment” or “avoided benefits”.

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Study Name MoT (1963) C&L (1973) CTAG (1975) DoT (1982) Anguera Thesis Anguera Paper

Different Scenarios Very high, upper, lower, very low Low-forecast, central- forecast

Tunnel with different investment in existing

services

Scenario A, central B, scenario C

Short term, long term Short term

Comments Just UK share Just UK share

Base Year 1969 1973 1973 1981 2004 2004 Start Year 1963 1973 1975 1991 1987 1987 Discount Rate 7.0% 10.0% 10.0% 7.0% 3.5% 3.5% Construction Period 5 7 5 11 7 7 Operation Period 50 50 50 39 9 9 End of Contract 2018 2030 2030 2041 2003 2003 End of Contract if Starts at 1987 2042 2044 2042 2037 2003 2003 Channel Tunnel Costs Capital costs,

operating costs Capital costs

Capital costs, operating costs Capital costs, operating costs Capital costs, operating costs Capital Cost

Avoided Shipping, ports, roads Other services

BR Investment Costs

Infrastructure, passengers and freight rolling stock

Infrastructure, passengers and freight rolling stock Channel Tunnel

Benefits

Revenue, consumer surplus

Total user benefit from fares, journey time reduction, extra service

frequencies

Revenue, travel time savings, consumer

surplus

Travel time savings

Revenue, travel time savings, consumer

surplus

Revenue, travel time savings, consumer surplus Avoided Benefit/Cost Reduction in transport operators' costs

Benefit/costs from the avoided investment in other services Avoided cost/benefit of existing service Producers’ Losses Decrease in transport operators' revenues Decrease in ferries’ revenue