Cypher/Cat A
CONFIDENTIAL
PRIORITY HONG KONG TO COMMONWEALTH OFFICE
Telno 1344. CONFIDENTIAL
4 September, 1967
For Galsworthy, Cross Harbour Tunnel.
Grateful for your suggestion.
55
(D.T.D.)
HW
2. There are, I believe, two separate, although to some extent connected, risks involved which are of concern to E.C.G.D., the political and the commercial. I had earlier understood that their reluctance stemmed solely from their view that, with the high loan gearing proposed, they are being improperly asked to underwrite the commercial risk. It is not clear whether their unwillingness or inability is now related to political as well as commercial risks and whether the guarantee to E.C.G.D. is required to cover both risks or the commercial risk only.
3.
Some official views here have always held that the tunnel is not a particularly attractive financial proposition and even our earlier offer to the company of a 12 and half percent subscription of equity was agreed at least partly out of the necessity not to appear publicly to be responsible for an abandonment of the project by refusing to participate.
4.
It is not (repeat not) at all certain that I could secure the agreement of both Councils even to the increase in Government's equity contribution suggested in my telegram No. 974. If any guarantee of the loan by this Government were additionally required, there would in my view be no (repeat no) prospect whatsoever of securing their agreement, on the grounds that Government could not properly guarantee, even in part, a loan to a commercial organisation with extensive private shareholding.
5. The only alternative would be complete Government take-over of the project. We cannot, however, contemplate capital expenditure of the amount involved on a comparatively low priority project; while it might well be expensive to buy out the private shareholders. 6. I think, therefore, that there is no (repeat) no prospect of your proposal solving the problem, even if you were to secure agreement at your end. I will, however, have an opportunity of trying it out on Executive Council and Finance Committee later this week and I would prefer to leave a final decision until then.
7. A final decision is, however, very urgent as Costain's will not hold their tender open much longer.
Officer Administering the Government
DEPARTMENTAL DISTRIBUTION
H.K. and W.I.D. 'C'
C.F.P.D.
J.R.D. (Economic Section)
South Asia Dept. F.E.D.
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Sent 0854Z4 September Recd 0906Z 4 September
RECEIVED IN ARCHIVES No. 63
- 5 SEPID67
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