149
SECRETARY OF STATE
co Minister(TCA)
PUSS(Trade)
Secretary(Trade)
Kr Denman Dep Sec Mr Preston Dcp Sec
Mr Fell MCGD
Kr Edwards CRE2
Mr Homan !!
Mr Jefferies Ec$5
Mr Parritt AccS
Mr Watson OFP
Viss Tyles OFP
HONG KONG MASS TRANSIT SYSTEM
Following your question on this, I have discussed with ECS, Accountancy Services Division and ECGD, the Bank of England calculations of the degree of subsidy involved in the proposed ECGD terms for this contract. We believe that the Bank's estimate of subsidy is much too high.
The Bank figures are based on calculating:
(a) the present value of the total loan
(b) the present value of the receipte
(c) the present value of exports
HK m
2,553
1,776
2,147
By deducting (b) from (a) and expressing this as a percentage of (c) the Bank assess the subsidy as 36.2%
This method of calculation is by no means the only, and indeed may not be the correct, approach, A more usual economic accounting method would be to compare the present value of the advances to be made (which are to be phased over 5 years) with the present value of the receipts. On this basis the figures would be:
(a) present value of loan advances
(b) present value of receipts
(c) present value of exports
HK Zm
2,147
1,776
2,147
By deducting (b) from (a) and expressing it as a percentage of (c) the subsidy would, I understand, work out at about 20.9. This compares with a subsidy figure of 13.4 which would result, under both the Bank's formula and ours, from the earlier terms agreed for the contract.
1.