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(c) In connection with paragraph 9, Mr. Newall said the
British Group were of the opinion that the Hong Kong
Government would not be able to obtain the first four
stages of the IR, as at present defined, for $5,000
million. Mr. Haddon-Cave said that, if this were
true, the project might have to be abandoned, and
this the Government was quite prepared to do.
Mr.
7. Mr. Kindersley then commented on the overall financial
picture, and the text of his comments is at Annex C. Haddon-Cave, referring to paragraph 16 of Mr. Kindersley's
comments, agreed that the MTSG's choice of the various annual escalation factors (viz. 8% for capital costs, 6% for recurrent costs and 4% for fares) might be open to debate, but pointed
out that the MTSG considered these factors to be realistic and
appropriate. In particular, the 4% p.a. escalation factor
assumed for fares had been chosen after very careful considera-
tion. On financial and transport policy grounds, the MTSG had to consider the possibility of consumer resistance to the TR, at least in the early years of operation. It had also been
necessary to have regard to political constraints on the extent
to which public transport fares could be raised. Thus, the
MTSG's view was that it would be wiser to adopt a higher initial
fare structure and escalate it at a moderate rate than to start
from a low base and increase fares more sharply. This was what the MTSG had assumed, and the initial fare structure now used in
the cash-flow tables was already more than 15% higher than that previously used. Mr. Kindersley said London Transport had been able to keep their fares ahead of increases in the cost of living without losing patronage. Mr. Haddon-Cave said the political
background in Hong Kong was different from that in London.
Generally, the Hong Kong population had been accustomed to stable public transport fares, and it was only recently that the stern resistance to fare increases seemed to have been broken through.
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CONFIDENTIAL