Mr. Godden
Mr. Stewart
86
Flag
(79
FI
98
Cross Harbour Tunnel
The Minister will have seen the Governor's reply (Hong Kong Tel. No. 194) to his personal telegram (FCO Tel. No.153 to ilong Kong). I have discussed these telegrams with ECGD and we both see advantage in keeping these exchanges going and not allowing the momentum to flag.
2.
I attach a draft reply which has been agreed with ECGD.
Information on the French terms reaching us through other sources is in line with that given in paragraph 3 of the Governor's telegram. There have also been indications that the French have been pressing the Tunnel Company to come to an agreement with the French finance house (Société Generale) in time for this to be placed before the "French authorities" for approval on the 10th March. The same sources indicate however that the Tunnel Company may be aiming to keep the French in play and to avoid the imposed deadline by continuing to press for improvement of the terms.
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3. The Governor's telegram ties in with this information from other sources. In paragraph 3 he reports that the Company are keeping the French offer open. The reason, I think, is clear: want to develop the Dutch auction by opening "detailed negotiations" with ECGD (paragraph 2 of the telegram). The disadvantages of this situation for us are, of course, considerable; but ever since French interest in the project developed we have in fact been in such a situation, with the Tunnel Company in a very strong position to play the French and ourselves against each other.
4.
ECGD nevertheless feel some concern that, whatever the advantages of a "Dutch auction" for the Tunnel Company, the French may, for their own reasons, so reduce their terms as to tempt the Company to conclude a quick agreement and so leave us standing. The chances of this happening are perhaps slight. The state of near completion of the Costains contract is after all a strong reason for the Tunnel Company preferring British finance and for not closing the door on its negotiation until it is quite clear that better and acceptable terms are unobtainable.
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