12 billion pounds under the sea

AT THE END of November 1984, Mrs Thatcher flew to Paris for a summit meeting with President Mitterrand. With her she took the First Division of her Cabinet: Foreign Secretary Howe, Chancellor Lawson, Defence Secretary Heseltine and Transport Secretary Nicholas Ridley.

This was Thatcher at the height of her powers. General Galtieri had been defeated, Michael Foot despatched at the ballot box and Arthur Scargill was locked in combat with the Coal Board.

On the first evening there was a dinner at the Elysee with President Mitterrand. After that the ambassadorial Rolls swept Mrs Thatcher the short distance to the British Embassy in the rue de Faubourg St Honore. This must be the most beautiful British Embassy in the world. It had been purchased in 1814 by the Duke of Wellington from Napoleon's sister, Pauline Borghese, to act as his headquarters in the peace negotiations.

At 11 o'clock that evening a select band of ministers and officials gathered in the Salon Vert, the Ambassador's semi-private room on the first floor. The discussion, lubricated with increasing frequency by the Ambassador's whisky, centred on the Channel tunnel - Mitterrand had indicated that he wanted a decision the following day on whether there was to be a combined Anglo-French venture.

At the start, recalled the Ambassador, Sir John Fretwell, Mrs Thatcher's attitude was definitely hostile. "She went through all the familiar arguments against it. That the traffic would be devastating to Kent, that it would destroy the ferries, that it would cost too much." Certainly there were some sceptics in the party. Sir Geoffrey Howe's constituency might be affected by a Channel tunnel rail link; Nigel Lawson at the Treasury was sceptical about all big spending projects.

Then the mood changed. "Something must have stirred mysteriously in the Prime Minister's mind in favour of a grand project," Foreign Secretary Sir Geoffrey Howe remembers. "Subsequently she defended it by reference to having done something that will stand in the memory of this administration."

As the clock moved on towards two in the morning Mrs Thatcher was referring to the tunnel as the most exciting project of the century. Andrew Lyall, Under Secretary at the Department of Transport, watched the ministers follow their leader. "Once they saw the Prime Minister's burst of enthusiasm they all quickly fell into line - 'Yes, Margaret, that is what we must do.' "

And so at two o'clock in the morning in the rue de Faubourg St Honore they drank a toast to another piece of Anglo-French cooperation, the Channel tunnel, a successor to Concorde. "We had to have another drink before we were allowed to go to bed," Nick Ridley, Transport Secretary, recorded in his memoirs, "exhausted though we were."

The following day Mrs Thatcher and President Mitterrand agreed in principle to build a tunnel to be financed entirely by the private sector. But though it was meant to be the flagship for the private-sector construction of public projects, it was to turn into a financial Titanic.

It was meant to open in 1993 at a cost of pounds 5bn. It limped into operation with a limited service in 1994, at more than double its original cost. This is the story of how they spent pounds 12bn under the sea.

THE GROUP gathered in the Salon Vert were the last in a long line of engineers, politicians and crackpots who had dreamed of building a Channel tunnel over the past 200 years. Mrs Thatcher's predecessor, Edward Heath, saw a tunnel as a symbol of his commitment to Europe. But Heath fell from power and the incoming Labour government cancelled the project, to the fury of the French. Just one year later, in 1976, the idea was secretly revived.

The railways had always been keen on a tunnel. And it was a railwayman who began to plot this latest version. Peter Parker took over as chairman of British Rail in 1976. Early on he decided to relaunch plans for an Anglo-French tunnel, to be revealed when he judged the political climate was right.

In September 1978, in a speech co-ordinated to the hour with a similar announcement in France, Parker proposed a joint British Rail/SNCF (French railways) scheme to build what became known as the "mousehole tunnel". There was to be only one tunnel carrying rail traffic. There were no plans for carrying cars at all.

Parker probably realised that his particular tunnel was unlikely to gain acceptance in its original form. But his concern was to get a tunnel back on the agenda. Whatever tunnel was eventually built was virtually certain to contain rail - the environmental case for freight was almost irrefutable.

And elsewhere, on the fringes of Whitehall, other groups were quick to show an interest. The building trade had never given up on the idea of a tunnel. To them it looked like Heaven on Earth: a long contract, years of guaranteed work, a client - the government - with deep pockets ... Even before the Conservatives came to power in 1979, the construction company Tarmac was discussing the possibility of building a tunnel with senior Conservatives like Michael Heseltine - and more importantly, and very presciently, of it being financed in the private sector.

The squeeze on public spending under the Conservatives, and the recession of the early Eighties, meant that building contracts were ever more difficult to find. So other builders began to sniff round the tunnel. Costains formed a joint venture with British Rail. Wimpey and other contractors had schemes in development. Parker's mousehole tunnel was growing bigger by the month - now the plan was for two rail tunnels with a smaller service tunnel linking them in the middle. Banks were becoming involved. Robin Leigh Pemberton, then chief executive of the National Westminster (and later to play a decisive role in saving the tunnel as Governor of the Bank of England), was just one of those lobbying Norman Fowler, first Transport Secretary in the Thatcher government. But other, political factors were working against the lobbyists, and against the tunnel.

There were the French for a start - or, more precisely, the French President Giscard d'Estaing. If he had won the 1981 French presidential elections - which he very nearly did - there would be no tunnel today. Mrs Thatcher loathed him. She thought he was arrogant, patronising, aloof. On one occasion she rearranged the seating at an important dinner so he spent the entire evening looking at a portrait of the Duke of Wellington, conqueror of France and Napoleon.

And Mrs Thatcher had already gone to war with Europe over the British contribution to the EC budget. At a whole series of European summits through the early Eighties there rang out the Thatcher complaint: I want my money back. In this climate, Transport Secretaries Fowler and, later, David Howell tried, very quietly, not to let the tunnel be killed off by the Treasury.

Personal chemistry, and a railwayman's son, were to change the picture. Francois Mitterrand was a socialist. His father had been a stationmaster. He was committed to the public sector. He had communist ministers in his first government. If Giscard had been bad, thought the Thatcher entourage, surely Mitterrand would be worse. In fact, he was better. Much better.

Their first summit meeting was in London in September 1981. Mitterrand, complete with communists, came with lashings of Gallic charm. Robert Armstrong, Cabinet Secretary, recalled that: "President Mitterrand was much more chivalrous, much more conscious of the Prime Minister's femininity, than Giscard had been. She had responded to this and it made for a better relationship." And the tunnel took centre-stage at the summit. The personal chemistry may have been good, but there was virtually nothing on which the free marketeer and the socialist could agree. But they could agree on a Channel tunnel, setting up further studies into the various schemes on offer. In the plane on the way home Mitterrand said to his aide Jacques Attali of Mrs Thatcher: "She has the eyes of Stalin and the voice of Marilyn Monroe." The unlikely entente between the two leaders was to last until Mitterrand's death.

THE FALKLANDS WAR in 1982 brought a Falklands factor into the tunnel. Argentina was equipped with French weapons: Mirages, Exocets, Super-Etendards. France's Foreign Minister Claude Cheysson wanted France to support Argentina, seeing this as a colonial war. Mitterrand overruled him. Britain, he told his cabinet, had supported France in two World Wars this century. France's duty was to support Britain now. The day after the war started, Mitterrand's aide Jacques Attali recalls, "He picked up his telephone and told her, 'We have a lot of problems together, but as far as crucial issues for my main allies, including the UK, are concerned, I am with you.' And she was stunned."

Not long after, with the war at its height and French weapons sinking British ships, Thatcher paid tribute to Mitterrand at a dinner of the Anglo-French council in Edinburgh. She told the audience about his phone call: "I shall never forget that quick and timely and thoughtful gesture."

The full details of French assistance to Britain have yet to be made public. It is known that the French put bureaucratic obstacles in the way of further Exocets being shipped to Peru in case they went to Argentina. French red tape held them in Limoges for the duration. Every day during the conflict, John Parker, the defence attache at the British Embassy in Paris, left the rue de Faubourg St Honore for a meeting at the French Defence Ministry. The French were telling the British about the configuration of certain weapons systems, giving as much assistance as they could about the Exocets, so the British could get used to their radar profile. In his memoirs Jacques Attali recalled his astonishment at the sinking of HMS Sheffield, after all the help the British had had from France. Interviewed recently he refused to comment on French help during the war, saying it was still too secret. By a strange coincidence, a paper on the tunnel was due to be discussed at Cabinet on the day the Sheffield was sunk. Peter Parker was rung by a friend in Whitehall: "Peter," he said, "you've lost your tunnel. It's been knocked off the table in the crisis."

But the tunnel survived. A consortium of Anglo-French banks was asked to look into the finance possibilities. The bankers realised early on that they had been set an impossible task - reporting to a French government which assumed the tunnel would be built in the public sector, and to a British government which insisted it be built in the private sector. The bankers didn't hurry. Their report didn't appear until the spring of 1984.

By then, the political landscape had changed. Thatcher had won the 1983 election with a huge majority. Privatisation was beginning. At the European Summit in Fontainebleau in June 1994 there was at last a settlement of the British budget contribution. In the chair, as President of the Community, sat Mitterrand. Some French observers believe to this day that Mrs Thatcher agreed to the tunnel as a reward, a quid pro quo, for French help in the Falklands and at Fontainebleau. The British deny any linkage of any kind.

This was Mrs Thatcher's least Eurosceptical period in office. She could see great opportunities for Britain in the Single European Act which would open up Europe to British goods and British expertise. A new wave of Thatcherite entrepreneurs, liberated by her economic reforms at home, would sweep in triumph across the Continent.

By now other formidable figures were lobbying for a tunnel. Only once in her memoirs does Mrs Thatcher mention the tunnel. She records the chairman of the National Coal Board Sir Ian MacGregor coming to talk about his scheme in March 1984, during the miners' strike. Another Thatcherite industrialist, Sir Nigel Broackes of Trafalgar House, was lobbying hard the same year. Broackes had an important ally in the Cabinet: Mrs Thatcher's favourite businessman, Lord Young.

MacGregor and Broackes were pushing a combined bridge-tunnel-bridge scheme called Euroroute. Its need for huge quantities of steel made it attractive to MacGregor when he was at British Steel; and Broackes's Trafalgar House had a steel plant at Darlington in the north of England which would have received huge orders.

The final factor that swung Mrs Thatcher towards the tunnel was a letter from the National Westminster Bank. The 1984 bank report on financing the tunnel sat on the fence over the question of public or private finance. Transport Secretary Ridley, as hostile to Europe as he was to public spending, rubbished it when it came out.

But one man was determined the tunnel should not die merely because the two governments couldn't agree on how to pay for it. Colin Stannard of Nat West persuaded his superiors in the bank that they should write a letter to the Department of Transport, saying that the tunnel could be financed in the private sector. This was a vital link in the chain: a high-street bank assuring a sceptical government that no public funds were needed.

So the tunnel got its green light in the Salon Vert in the Paris Embassy in November 1984 - via a serpentine route, often in danger, never killed off.

AFTER THE green light there was a beauty contest. Promoters - would- be tunnel builders - had to submit proposals to the two governments.

At the death there were three contenders left in the field: Euroroute, run from the Trafalgar Suite at the Ritz Hotel by Sir Nigel Broackes; Channel Expressway, a system of tunnels for cars and rail run by the flamboyant American tycoon James Sherwood; and Channel Tunnel Group, with a scheme for a tunnel to run through-trains and shuttle trains carrying cars like the ones we have today. Its chairman was Sir Nicholas Henderson, previously Ambassador to West Germany, France and the United States. Broackes was friendly with Lord Young and had been appointed by Thatcher's government to run the Docklands Development Corporation. But Henderson went to Chequers for lunch with the Prime Minister on Boxing Day.

Henderson won. Nigel Lawson and the Treasury were convinced that whichever scheme was chosen, it would over-run its costs. The Henderson tunnel was not the most expensive on offer. Better by far, they thought, to go for a cheaper scheme that might over-run by less than one that was more expensive to begin with.

And so at Lille in January 1986, 11 years virtually to the day since the cancellation of the Heath tunnel, Thatcher and Mitterrand announced that Henderson was the winner. It was, said Mrs Thatcher, an opportunity for the private sector to show what it can do in a project of the utmost national importance. And there was a treat in store for connoisseurs of the Thatcher style. Sir Charles Powell, private secretary to the Prime Minister specialising in foreign affairs, had a trick up his sleeve. "We thought it would be a rather good idea for Mrs Thatcher to give a speech in French to mark the occasion. Now there was one problem. Mrs Thatcher doesn't speak French." So Powell brought in a Frenchwoman, Annie Renwick, wife of Robin, now Lord Renwick, later Ambassador to South Africa and the United States, to give intensive one-to-one tuition in French at 10 Downing Street. Word by word, phrase by phrase, they went through the speech Mrs Thatcher was to deliver at Lille. Reporting on the finished product, Le Monde commented: "Elle a lu ce court texte, prepare par ses collabarateurs; mais la prononciation, resultant de nombreuses repetitions, etait plus qu'l'honourable." Another victory over the despised Heath, whose schoolboy French had been a national joke.

A sick joke of a very different kind was contained in the promotional video circulated round Westminster and the City by the winning consortium. After describing the great experience of the component construction companies it went on to boast that their expertise was so great they would complete the tunnel On Time and On Budget.

THE WINNING consortium now broke up. Channel Tunnel Group had been composed of 10 contractors, five British and five French, and five banks, two British and three French. The banks refused to lend direct to contractors. They insisted on creating an intermediate body to manage the contract and operate the railway system when it was completed. They invented an owner to stand between the banks and the contractors, and called it Eurotunnel. The 10 contractors became a new company called Trans Manche Link or TML. They no longer owned the project they had spent years lobbying governments for. Their job was just to build it. They did, however, make the most of their last days of ownership. They insisted on drawing up the construction contract before Eurotunnel formally came into existence. The contract stipulated where the balance of risk lay in all areas of construction. Eurotunnel, and its co-chairman Sir Alastair Morton, were to maintain ever afterwards that it was biased in favour of the contractors.

Eurotunnel might look good as a name. It had little else going for it. The finance model for giant projects like the tunnel came largely from the oil industry - the Alaskan oil pipeline for BP, North Sea oil fields. But these projects were ordered and managed by companies with vast experience, and deep knowledge of the problems from previous ventures all over the world. Eurotunnel's filing cabinets didn't exist. Its merchant bankers tried in vain to find a big company to be the dominant interest in Eurotunnel. Nobody wanted to know.

And large oil companies have revenue. Every petrol station, every refinery could contribute, however small the amount, to the cost of servicing the money borrowed to pay for the new development. Eurotunnel had no income until the tunnel was finished. Every penny was borrowed. Any delay in the final timetable would mean more borrowing, more interest, more debt. Thatcherite ideology took its toll: despite all their expertise, state-owned industries like BR and SNCF were barred from the project.

Sir Alastair Morton made a great deal of noise when he ran Eurotunnel - newspaper headlines for the next seven years were frequently dominated by conflicts between Eurotunnel and TML. But the invisible players, the ones the public rarely saw, were the banks. At one point their lendings to Eurotunnel amounted to pounds 9bn - the equity holders, the shareholders, were always the tip of the Eurotunnel debt iceberg with about a fifth of the total lending. The banks were in the driving seat. "They could cut the project off at one month's notice," says Morton, "and very nearly did sometimes."

THE FIRST round of money-raising was to provide Eurotunnel with its first, almost terminal crisis. Under the agreement with the banks, Eurotunnel had to raise pounds 1bn of share capital, or equity, before the banks began to disburse their loans. The original founders - the consortium of British and French construction companies and banks - had put about pounds 50m into a fund-raising round known as Equity One. Now it was planned to raise a further tranche of pounds 200m in the autumn of 1986, known as Equity Two.

During the beauty contest to find the winning consortium, a number of financial institutions had provided Channel Tunnel Group with promises of support. This had helped to underpin the financial reliability of the consortium. Now Morgan Grenfell and Robert Fleming, the two merchant banks involved, had to turn those promises into hard cash.

London and Paris had to raise about pounds 100m each. In Paris, Marc Tabouis of Banque Indo-Suez remembers talking to about nine or 10 people only, key players at the heart of the French financial establishment. But in London it proved a long and futile march around the institutions. Equity Two could only be offered to big financial institutions like life insurance companies and pension funds. But the Channel tunnel legislation had yet to pass through the House of Commons and the House of Lords - so the very financial institutions which had been supportive the previous year wouldn't cough up any money. Michael Julien, deputy chief executive of Eurotunnel, recalls the then chairman Lord Pennock climbing into his Rolls-Royce and driving round the City with his begging bowl - on one occasion returning with a pounds 5m injection from a leading oil company.

Lawrence Banks of Robert Fleming always believed that they would be successful in the end. But it took the Bank of England to help them out. The Governor deputed one of his directors, David Walker, to talk to the institutions and suggest in no uncertain terms that they should invest.

Even after that, London was still short. The founder members had to put their hands in their pockets again. Sir Neville Simms of Tarmac remembers driving along the M27 and receiving a call, saying that Equity Two was short and would Tarmac put in another million. Thinking the tunnel would be good for Britain, Simms agreed. The Bank of England saved the day.

ALL THIS time there had been a relentless campaign by the ferry companies and their umbrella organisation Flexilink against any form of fixed link across the Channel. Since the early Eighties the Dover Harbour Board, which represented port and ferry interests, kept up a barrage of arguments against a fixed link. Channel Tunnel Group had employed BBC newsreader Peter Woods as the voice on its promotional video. Flexilink signed up Tomorrow's World presenter Michael Rodd to make some highly alarming videos, circulated round the City. One warned of the dangers of a fire in the tunnel, and prophesied that there would be one within the first year. Another assured potential investors that they might have to put their hands in their pockets again and again if they were ever to see a return on their investment.

The Bank of England felt obliged to put new management into Eurotunnel after the fiasco of Equity Two. David Walker's choice as co-chairman was Sir Alastair Morton, previously with the British National Oil Corporation and then at Guinness Peat in the City. In the words of somebody who worked closely with him over the next six years, Morton was incapable of passing a pond without throwing stones into it to watch the ripples.

Tragedy strengthened his hand. Early in March 1987 the Herald of Free Enterprise capsized off Zeebrugge: 192 people lost their lives. Much of the force went out of the ferry companies' argument - their safety case against the tunnel had collapsed.

However much some of the contractors disliked Morton, they all pay tribute to his ability to raise money in the City. He put the third round of fundraising, known as Equity Three, back to the autumn of 1987. He finalised a huge international syndicated bank loan with 200 banks from around the world. He brought in new advisers. They had built - at a cost of half a million pounds - a model railway of the Eurotunnel system in operation, which they installed in an office right in the heart of the Square Mile. Here, having shown off the train set, Morton would bombard fund managers and other investors with the potential of the Channel tunnel. In spite of the Wall Street crash the month before the launch, Morton and his team, helped by pounds 37m from Robert Maxwell, did it. Equity Three succeeded. The banks now knew that the pounds 1bn of equity upon which they had insisted as a pre-condition of their loans had been raised.

Had they but realised it, another event occurred in November 1987 which was to have almost as much impact on the tunnel as the success of Equity Three. The King's Cross fire, coming after Zeebrugge, and to be followed by Hillsborough, Clapham and other disasters, changed the public conception of safety. One member of the Safety Authority, appointed by the British and French governments to ensure safe passage underground, always remembered the terrible grilling London Underground staff received from the lawyers at the inquiry into King's Cross. Whatever it took, he resolved, he was never going to have to stand up in court and be treated like that. The Safety Authority was to increase the levels of safety required in the tunnel time and time again. It must remain an open question whether the Treasury would have approved so many extra levels of spending if the project had been financed by the public sector.

GEOLOGICAL STUDIES had shown that the ground for tunnelling would be dry on the English side, wet on the French. The vital piece of equipment on both sides of the Channel was the TBM or Tunnel Boring Machine, a vast computerised digging factory that crept forward through the chalk disgorging a trail of waste behind it. TBMs were designed to suit the conditions. The French built theirs like submarines - enclosed to cope in the wet and advance like a cork going up a bottle. The British machines were open, and much faster. The French gave their TBMs names: Catherine, Europa, Virginie and Pasqualine all bored their way from France towards Britain.

Then, a disaster, not far from the Kent coast. The British hit wet ground. They were digging three tunnels: two large rail tunnels to carry trains going in each direction and a smaller service tunnel for maintenance and safety in the middle. The service tunnel was going first and hit water - it came in like a waterfall at the worst moments. There were delays. The normal tunnel linings, made of concrete, had to be replaced with more expensive cast iron. The British TBMs, designed to work in dry conditions, didn't function properly in the wet. Looking at the chaos underground the British knew that if the conditions remained like that all the way through to the breakthrough point with the French, they were doomed. The delays and the extra cost of the linings would mean that their original estimates, which had assured the sceptics in the City that it was like cutting through Cheddar cheese, would be way below the final cost.

Meanwhile, on the surface, six years of continuous warfare had begun. There was a clause in the contract which prevented the contractors, TML, from talking to the press. But there was no such clause preventing Morton from talking. To everybody. Occasionally his criticisms were so severe, or the financial crisis so grave, that the contractors would hold a Press Conference at the Pavilion Gabriel in the heart of Paris to reassure clients they were perfectly capable of fulfilling their contracts.

After one vigorous exchange in 1989, TML headhunted a new man to run the tunnelling operation. Jack Lemley was an American and had worked on major projects all over the world.

Eventually the ground on the British side grew dry again. They modified the TBMs to cope better in the two big tunnels. They began to catch up on their timetable. But at a cost. Lemley drew up another end-cost estimate which showed the tunnel billions of pounds over budget. Morton knew that he would have to go back to the banks for more loans, and raise yet more equity - what became known as Equity Four. But he wasn't going to move until he had something to show investors. He determined to wait until the first breakthrough underground before raising the next pounds 2bn.

November 1990 was to be Mrs Thatcher's last month in power. Her feelings for Europe, lukewarm at best in the mid-Eighties, had been replaced by the scepticism of Bruges. Just as she was saying her famous "No, No, No" in the House of Commons in answer to a question about further European integration, deep beneath the Channel, Britain was joining the Continent. The first breakthrough was underway, a breakthrough that Mrs Thatcher would never see.

For some of the tunnellers on the British side the loss of Mrs Thatcher was a bitter blow. She had been down the tunnel and made a deep impression on all who met her. Her brand of popular capitalism had given these men jobs for years. On her first day she had been given a piece of rock as a memento of her visit. But, the tunnellers told her, that isn't the important piece of rock. In tunnelling, they said, the important piece of rock is the one at the breakthrough. Alan Myers, one of TML's tunnel directors, got a suitable piece of rock for Mrs Thatcher from the breakthrough. He and construction director Peter Allwood wrote to her after the fall, urging her to come anyway. But she never came. They had the rock mounted and sent it to her. They believe it has a place of honour in her study.

Years later, Mrs Thatcher met Peter Allwood as he worked on a construction project in Hong Kong. You're the man who sent me the piece of rock from the tunnel, she said. It's one of the great ironies of the tunnel that, as the boring machines brought Britain and Europe closer and closer from 1987 to 1991, Mrs Thatcher, the creator of the tunnel, was moving in the opposite direction - away from Europe towards a narrower nationalism.

Live on television on 1 December 1990, the breakthrough was achieved in the service tunnel. Almost immediately afterwards Equity Four was a success. Another pounds 2bn was in the bag. Eurotunnel had their Christmas party in the Imperial War Museum, and the tunnel went through another of its brief moments of optimism.

IT DIDN'T last. The tunnellers continued to break records with the speed of their advance. The twin rail tunnels achieved breakthrough by the summer of 1991. The plan had always been to open the tunnel to traffic in mid- 1993. But as the fitting out of the tunnel began, that date began to slip.

Track, wiring, electrics, safety systems - all these had to be installed to transform a bare tunnel into a working railway. "We expected," said construction director John Hester, "that as each tunnel became available we would immediately have crews in there to start installing all these parts, brackets, all the things necessary - but we didn't have them. The parts weren't there to install, and what little we did have didn't fit or wasn't correct."

This was the cause of the delayed opening - not the construction of the tunnels, but the installation of the equipment and the purchasing and commission of the rolling-stock, the fixtures and fittings.

Originally, most of the British contractors hadn't wanted to install the railway at all. They just wanted to build the tunnel and then let Eurotunnel employ someone else to fit it out. But the banks insisted on one operator for everything, or they wouldn't lend the money to build it.

And now the safety concerns began to bite. A long catalogue of additional safety measures was added, particularly to the rolling-stock. On the passenger shuttles, the ability for each wagon to be fire resistant for 30 minutes, a fire-detection system able to provide the train crew with one of three different levels of alarm, video surveillance in every wagon, three levels of fire-extinguishing capability, and many, many more. The freight shuttles were changed from a closed to a semi-open design.

The extra cost, including the cost of delayed revenues as the opening date slipped, ran into millions. Eurotunnel and TML were left arguing over who should pay the bill. If it had been a purely French project, different rules would have applied. In a concession, or derogation de service publique, the contract is not a once-and-for-all-time event like in a British privatisation where the State hands over control. In France, with a concession like a water company or a motorway system, if the circumstances change - if safety requirements are increased, for example - the concessionaire can go back to the government and ask it to pay for these changes. Under the French system, Pierre Parisot, the chairman of TML, believes the French government would have paid for the extra safety. Mrs Thatcher's legacy made that impossible in Britain.

AS THE delays grew longer and the debt mounted, it became obvious that the original launch date of 1993 was no longer realistic. Costs escalated from the original estimate of pounds 4.8bn through pounds 6bn, pounds 7bn, pounds 8bn and beyond. The opening was put back to June 1994 when the Queen and Mitterrand performed ceremonies on either side of the Channel.

Nineteen-ninety-four saw something of a phony war with the ferry companies as Eurotunnel wasn't running its shuttle trains (carrying passengers in their cars) at anything like full capacity. The Eurostar through-trains to Paris and Brussels, then owned by a combination of BR, SNCF and Belgian railways, came into service towards the end of the year and were competing principally with the airlines. But the Dover-Calais ferry crossing was going to compete neck-and-neck with the tunnel.

In 1995 the gloves came off. It was as if two boxers who had been talking up their prospects before a big fight finally came into the ring. The ferry companies had always been sceptical about Eurotunnel's projected revenues and passenger forecasts. And they'd had six or seven years to prepare for the contest. Lord Sterling of P&O, looking back to the point where it became clear that the tunnel would be built, said: "You had two choices. You either got out, or you stayed and competed to offer a better service." The ferry companies had ordered bigger and more efficient ships. Workforces had been reduced. P&O had fought a bitter battle with its unions in the late Eighties over productivity, a kind of Wapping sur mer.

Most important of all, Eurotunnel's calculations had been based on the assumption that ferry prices would not fall far below the levels of the late Eighties. But the new ships and the new manning agreements meant that the ferry companies could drop their prices dramatically. And there were further complications. There were more ferries than ever before. Smaller operators were adding new ships. And the two leading ferry companies, P&O and Stena, had been talking about a possible merger on the Dover-Calais route for years. Until the tunnel opened the government was reluctant to agree - but both companies felt a merger might be approved once the tunnel was operational. And Stena wanted to merge from a position of strength, of equality of numbers with P&O, in case it got swallowed in the merger. So Stena was putting on more ships, to equal the P&O fleet, at a time when economic logic meant they should have been taking ships off the Dover- Calais route.

The Dover Harbour Board had threatened earlier that the ferries could bankrupt the tunnel in a price war. They very nearly did.

The price of the Dover-Calais crossing fell dramatically as the new tunnel and all the extra ships competed for business. Eurotunnel's revenues dropped to half their expected level. There wasn't enough income to service the debt to the banks. So, in the autumn of 1995, Eurotunnel announced a standstill on its debt repayment. It was virtually bankrupt. The balance sheet, ultimate arbiter of success or failure in the private sector, told the story of Mrs Thatcher's dream project: in its first full year of operation Eurotunnel lost more than pounds 900m.

But it had always been set up as an Anglo-French venture. And French law treats companies in difficulties in a different way, one that suited Eurotunnel at this point. Helped by informal mediators Lord Wakeham and former French Justice Minister Robert Badanter it negotiated its way out of the crisis.

Then in November 1996 came Eurotunnel's operational nightmare: the fire onboard freight shuttle 7539, a night that revealed just how bad Eurotunnel's procedures were. There was nothing wrong with safety equipment or the safety features; what went wrong was the human factor in Eurotunnel's rail control HQ in Folkestone, the Rail Control Centre or RCC. Eurotunnel had after all been warned by its own internal audit in July 1996 that the mistakes of November were likely to happen. The Safety Authority report into the fire concluded: "The audit Report highlighted many areas of concern and detailed the corrective actions which needed to be taken. Overall, the audit exposed the underlying weaknesses in the Rail Control Centre which were so plainly evident on the night of 18 November. It is regrettable that, by this date, Eurotunnel's senior managers had still not taken the necessary corrective actions."

This wasn't another King's Cross or Zeebrugge. Nobody died. But the official safety report did paint a devastating picture of Eurotunnel's failings on the night.

NINE PEOPLE lost their lives during the construction of the tunnel, seven on the British side and two on the French. Le Monde, describing the tunnel plans being set before the two governments in the Eighties, referred to them as "pharonique". The tunnel has much in common with the Suez and Panama canals, great construction projects of the last century. Like them the Channel tunnel will be remembered in 100 years time as a great engineering achievement. Like them it will continue to be a mighty artery for trade and for traffic long after its initial founders have passed away. Both the Panama and the Suez canals failed in financial terms, just as Mrs Thatcher's vision of shareholder capitalism building the tunnel has failed.

But the tunnel has shown extraordinary powers of survival, brought back from the brink by accidents, by the Bank of England, by last-minute loans in desperate meetings in the City of London.

Ferry companies can move their ships elsewhere, airlines can redeploy their planes. The tunnel is immovable. Jonathan Sloggett, managing director of the Dover Harbour Board, expressed his concerns about the tunnel's indestructability to a House of Commons Select Committee in 1986. The ferry companies, he said, were confident they could beat the tunnel in a fair competition: "We feel that one condition of a fair fight should be, if you like, that the dead should lie down. We do not believe, as a Board, that a failed Channel tunnel, if it does fail, will lie down." The tunnel has been nearly dead many times. But it has refused to lie down.

Across the Channel, the French have always been more optimistic. They have had no Gallic Alastair Morton attacking the contractors down the years. Pierre Parisot, chairman of TML, whose company also built the stadium for the football World Cup final in Paris this summer, is optimistic: "For the two economies it is a big success because the traffic is booming. Freight is cheaper. Shipping is cheaper. For people using the ferries it is cheaper - so they are winners. Europe is also a winner, if you believe in Europe. Everyone was a winner but the shareholders. The shareholders have lost."

! James Naughtie tells the story of 'The Tunnel' in three 50-minute programmes starting on BBC2 tonight at 7.40pm. David Dickinson is the series producer.