CONFIDENTIAL
Now the political considerations which over the last nine
months have kept the Hong Kong Government so interested in getting
the project off the ground (or perhaps under the ground would be
more appropriate in this case) have receded, and our impression
here is that it is this which has caused the Hong Kong Government
to adopt its present attitude rather than E.C.G.D.'s underwriting
requirements or H.M.G.'s conditions for underwriting 50% of the
Hong Kong Government guarantee, which have had little substantive
discussion. Certainly it is the case that the Hong Kong Government
never did proceed with their idea of becoming major shareholder
in the Tunnel Co.
The question for us now is whether there is anything we can
do to keep the project alive, or indeed if we really want to do so.
My own view is that we should probably let the Hong Kong Government
and the Tunnel Company shelve it. In your recent letter you
indicated that both you and Cowperthwaite are not entirely con-
vinced on the feasibility of the project, and I recall reading
elsewhere that the expected growth of traffic on the ferry had not
materialised, although the political disturbances may have been
major factor in this. I would not rule out the prospect of
E.C.G.D. reaching agreement with the Cross Harbour Tunnel Co.
on their underwriting conditions. However, with the cooling of the
Hong Kong Government's interest, both in equity holding and in
the provision of a guarantee, supported by the Commonwealth Office
(the penultimate paragraph of Carter's letter), it seems to
that it must be the commercial companies who must resurrect their
interest again if we are to get anywhere and, apart from Peter
Scales' brave words, all recent correspondence suggests that
there is little prospect of this. Of course, if the Hong Kong
Government were still prepared to provide acceptable guarantees
of payment it might be a different matter. One final point, no
/mention