COMMITITE
OF PRIVY
COUNCIL FOR TRADE
As you suggest, the proposal that the shareholders (which include the Government of Hong Kong) should give a joint and several guarantee was a possible method of obtaining a complete Hong Kong guarantee.
If, however, the Commonwealth Office or the Treasury would have automatic rights over the external assets of Hong Kong, if the worst happened, it might be open to one of them to counter-guarantee E.C.G.D. and so take care of the major problem.
There would still remain a lesser 'political' risk that political circumstances might cause failure to complete the tunnel, or might so affect conditions in Hong Kong that the tunnel was operated at a loss. This risk might well become an issue if agreement was reached on a method to safeguard the major political risk of a Chinese takeover.
Normally this lesser political risk (which it would be impossible to define satisfactorily) is borne by the equity interests. We do not often provide export credit for major projects in a country which is a manifest war or civil war risk, but when we do we certainly ask for a guarantee of payment from the Government concerned. I think I should make it clear now that E.C.G.D. would not agree to accept this risk, which is properly one to be accepted by the Hong Kong Government, or to be shared between the Hong Kong Government and the other equity interests.
You say that Col. Clague could not see what risk E.C.G.D. would shoulder in return for their premium. E.C.G.D. rates are very low because E.C.G.D.'s mandate under statute does not allow them to be drawn into false positions. A Hong Kong Government guarantee would not eliminate the risk of loss. Col. Clague and the other equity shareholders will be more than compensated for the premium by the fact that E.C.G.D. cover would give them access to 5% money.
Yours sincerely,
PS. I am urging on ECGD
Waled.
BROWN
to umplete then discussions with the
Treasury
as soon
as
possible. It would do
no harm of you informed the Treasury of your Anxiety over thus matter. WB
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