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Our reference SL/CW 24126/35
Your reference
1st May, 1968.
Dear
113
Hong Kong Harbour Tunnel
As you know, the directors of the Cross Harbour Tunnel Company are in London and they, and members of the Hong Kong Government have been talking to a variety of people about the financing of the Tunnel project.
2. We knew that the Tunnel Company had put revised proposals to Costain (the prospective contractors) and we yesterday learned from Costain some of the details of these changes. Costain have not yet evaluated the effect of the changes in terms of the likely contract price but they have confirmed that they are still interested in buil- ding the Tunnel provided they are able to negotiate a form of contract satisfactory to them. The information they have given us, together with that provided by the Tunnel Company in correspondence with Carter at the Commonwealth Office, has enabled us to piece together enough of the current picture for a re-examination of our attitude to be undertaken. "Re-examination" is perhaps not the right word: what we now have to examine is a new "mark III" version of the financing of this scheme.
3. The Tunnel Company estimate the cost of the tunnel itself, i.e. the value of the contract they propose to place with Costain and not including the peripheral costs of the project such as the approach roads, at £15.8 million excluding interest. This figure, which has nut hoon examined by Costain, represents an increase of £2.5 million compared with the former value of the contract. The Tunnel Company are seeking a loan for 75 per cent of the eventual total cost of the contract, without limit, to encompass the original estimate of the price and all subsequent price increases. They propose that the shareholders should give a guarantee, in the proportion of their equity holdings, against non-payment on the part of the Tunnel Company due to causes other than political. They further propose that, twelve months after the tunnel is opened (i.e. on present estimates, four years after the contract commences), they should establish a fund in London into which they would pay approximately £100,000 per annum. This fund would be made over to E. C. G.D. in the event of the Tunnel Company failing to repay the loan due to political causes.
4.
These are Tunnel Company proposals and neither we nor Costains have any idea whether they have the support of all of their prospective shareholders, in particular, the Government and of the Hong Kong and Shanghai Bank. In any event the proposals are not acceptable to E. C.G.D.
C. C. Lucas, Esq.,
H. M. Treasury, Great George Street, London, S.W.1.
15.