The Channel Tunnel ? an Ex-post Economic Evaluation



The Channel Tunnel ? an Ex-post Economic Evaluation

Authors

R Anguera, Strategic Rail Authority, UK

Description

This paper describes the Channel Tunnel's (CT) turbulent past, from the problems encountered in the late 1950s, when the project was first seriously examined, through to today's traffic levels and financial viability issues.

Abstract

The forecasts underpinning the construction of the Channel Tunnel largely and systematically overestimated the total size and growth of the cross-Channel passenger and freight markets. The share of the cross-Channel markets captured by the Tunnel was accurately predicted. However, this was only achieved through a competitive battle with ferry operators which resulted in reduced tariffs. The combination of these two factors resulted in revenues much lower than predicted. For completely separate reasons, the construction costs of the Tunnel doubled.

The cost benefit appraisal of the Channel Tunnel reveals that overall the economy has lost, with the total resource cost being greater that the benefits generated. Users have gained significantly at the expense of producers. The latter -both ferry operators and the Tunnel operator have incurred substantial losses. The single biggest component of user's gain has not, as originally expected, been in terms of travel time savings, but due to the transfer from producers. The longer term evaluation of the project confirms the poor viability of the investment both in financial and cost benefit terms

Scope
This paper describes the Channel Tunnel's (CT) turbulent past, from the problems encountered in the late 1950s, when the project was first seriously examined, through to today's traffic levels and financial viability issues. It highlights the troubles with the initial project proposals and compares the actual traffic levels with the historical forecasts. The financial and cost benefit appraisals draw on the analysis and comparison of costs and revenues and on the detailed welfare analysis.

t should be noted that this paper presents the historical sets of forecasts undertaken historically prior to and during the construction of the tunnel. It identifies the scale and effects of the large deviations in the forecasting exercises. It does not, however, deal with any potential methodological, original database, or other issues which may have affected the historical forecasts. In terms of construction costs, it identifies the scale, sources and effects of the errors (in terms of the project appraisal). It does not attribute or identify causes on the methodological, social or political aspects of the process.

Publisher

Association for European Transport