Dark days ahead for Tunnel

WHAT is the future of Eurotunnel after the dramatic sacking of its board by a ragged army of French rebels? In an unprecedented situation, the answer is hard to gauge. Clearly the dramatic events of the last 48 hours are only the beginning.

The key question for the new management, whose final makeup was still uncertain last night, is how to keep the bankers at bay. It is facing wall-to-wall problems.

Nominally the shareholders own the company, but any lossmaker owing £6.4bn is effectively at the mercy of its lenders.

If the next financing talks do not come until autumn, as the old management planned, Monsieurs Miguet, Maillot and their followers may have a few months' breathing space.

Some fear they are a bunch of unwashed Jacobins storming the gates and putting management to the guillotine. They say their candidate for chief executive is a turnaround specialist. The claim will soon be put to the test. You can hardly blame the revolutionaries for being unhappy with the shares. Launched at 350p and once memorably described by a US investment bank as heading for £20, they hit 23 1/2p a year ago.

Now they are 38 3/4p, after thousands of Frenchmen, fired up by the rebels' rhetoric, climbed aboard.

Few ventures sum up the virtues and vices of our times more aptly than Eurotunnel. In vision and engineering terms, it's a triumph. In investment terms, it's a disaster.

In management, it has been beset by troubles. Contractors ran over budget, politicians vacillated, bankers turned the screw and train operators delivered the serial disappointments that have become a staple feature of rail finances.

The tunnel arrived in 1994 - a year late and £4bn over budget. Since then it has endured a series of refinancings.

Traffic has been limited because ferries and cheap airlines compete fiercely, train links have been delayed and security problems have twisted up costs.

In such circumstances, boards can easily become too focused on creditors and not enough on shareholders.

A challenge from small investors can be healthy. But this challenge does not look well founded. For one thing, it wants to put fares up when they need to come down.

The tunnel is certainly capable of better performance. It could run at least 50% more trains. Instead of carrying the 16m passengers the promoters hoped, it is carrying 6.5m, though at least the numbers are now rising.

A unique aspect of the tunnel since Day One is that four times as many people travel from Britain as to Britain.

That makes it all the more bizarre that the new board is all-French. If it is serious about tackling the problems, it should seek some UK directors. Finding them might be difficult. Last night, Miguet was feted as a hero. But critics say he encouraged up to 400,000 French people to buy the shares, claiming they could be worth £2.

To succeed, his team needs to persuade 200 banks and two governments to give way and to overturn the iron 'no subsidy' rule set by Lady Thatcher at the outset of the project.

That looks a tall order. If they fail, it could all turn to zero quickly - and Eurotunnel could revisit its darkest hours.

Premium effort

FOR the Lloyd's insurance market to make record profits of £1.9bn is an achievement. But the real achievement is that it is here at all. After the traumas of the late 1980s, it was so weak that an atrocity on the scale of 9/11 would surely have finished it off.

In fact, Lloyd's lost £3.1bn in 2001, the year of 9/11, and even though it rebounded to £834m profits in 2002, it is still in the red over three years. But it absorbed the shock without a financing crisis.

Insurance is a grim business. It prospers when man-made and natural disasters cost less - sometimes because they happen in the poorer parts of the world where the human cost is high, but the financial cost is not.

Lloyd's improved results are largely because it pushed premiums through the roof in the wake of 9/11.

But someone has to do the job and Lloyd's has confounded the sceptics who wrote it off a decade ago.

Chief executive Nick Prettejohn and his team have done well to enforce discipline with their 'franchise reforms' that bring overexcited underwriters to book. He says the market has 'changed fundamentally since the 1990s'.

Earthquakes and typhoons will not always be confined to poorer nations and terrorists are on the prowl.

The market's new strength may soon be tested. But Lloyd's, on which 40,000 London jobs depend, has made an impressive recovery.