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Track record of Carillion et al does not bode well for HS2

picture of train
All aboard, Carillion gets a lifeline

One (online) definition of a white elephant is a possession that  its owner cannot dispose of and whose cost, particularly that of maintenance, is out of proportion to its usefulness.

Well, it’s too early to tell how much it will cost to maintain the HS2 rail line and time will tell its usefulness, but what we do know is that it will be the most expensive piece of railway line ever built.

Current estimates are a bill of £57bn, but given the record on huge engineering projects around the world if the final bill comes it anywhere near that number it will a minor miracle.

And the omens are not looking good. Independent analysis has already suggested the London – Birmingham stretch alone will cost £48bn or fifteen times per mile more than France’s TGV. 

Of course, France is much larger and less densely populated, but the record of the industry is another area for concern, a reminder of which came very forcibly last week from Carillion PLC (LON:CLLN).

The contractor has shed more than 60% of its value since it warned it was the latest to fall foul of the industry’s seemingly unbounded optimism on pricing to ensure the work keeps rolling in.

Some eyebrows were therefore raised when Carillion picked up tunnel work worth £1.3bn in the batch of HS2 contracts awarded today, though presumably these were decided a long time ahead of last week’s profit and cash warning.

HS2 was also quick to reassure that Carillion is part of a consortium with Kier and French firm Eiffage and all three have given guarantees to underwrite each other on the project.

And today’s news has at least stopped the rot in the Carillion share price and perhaps given it a chance to point to a potentially brighter future.

 

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