GRS 270
IMMEDIATE
CONFIDENTIAL
RECENT
REGISTR C6DELIAS
HKK 211
329
CYPHER/CAT A
FM F C 0 041915Z
CONFIDENTIAL
DESKBY 653838Z
E.
NEXT
RE:
335
TO IMMEDIATE ROME TELEGRAM NUMBER 473 OF 4 DECEMBER 1973 INFO
IMMEDIATE MILAN.
HONG KONG MASS TRANSIT SYSTEM.
A CONSORTIUM CONSISTING OF THE INTERMETRO GROUP AND CERTAIN BRITISH FIRMS INCLUDING GEC/ELLIOTT AUTOMATION ARE AT THE CRITICAL STAGE IN A COMPETITION TO DECIDE WHETHER THEY OR A JAPANESE GROUP
SHALL ENTER DETAILED NEGOTIATIONS FOR A TURNKEY CONTRACT TO BUILD
AN UNDERGROUND RAILWAY IN HONG KONG. BIDDERS ARE ASKED TO MEET CERTAIN PREREQUISITES THE MOST DIFFICULT BEING A FIXED PRICE, (IE ONE THAT TAKES INTO ACCOUNT ESCALATION OF COSTS)
*
2. THE BRITISH FIRMS SUPPLYING MAINLY MECHANICAL AND ELECTRICAL EQUIPMENT, ARE CONFIDENT THAT THEY ARE COMPETITIVE. THE ITALIANS, SUPPLYING MAINLY CIVIL ENGINEERING (ABOUT TWO THIRDS OF THE WHOLE), CANNOT QUOTE SO CONFIDENTLY FOR LACK OF INFORMATION ON SOIL AND OTHER CONDITIONS IN HONG KONG. THE CIVIL SIDE IS ALSO LABOUR
INTENSIVE AND VERY VULNERABLE TO COST ESCALATION.
3. THE ANGLO-ITALIAN GROUP HAVE PUT IN AN INDICATIVE PRICE OF. HK DOLLARS 4,000 MILLION, BROUGHT UP TO A CEILING OF HK DOLLARS 5,876 MILLION ON BASIS OF 18 PER CENT COST ESCALATION PER ANNUM. JAPANESE SAY THEY CAN MANAGE WITHIN A CEILING OF HK DOLLARS 5,000 MILLION. HMG ARE GIVING VERY SUBSTANTIAL SUPPORT THROUGH ECGD: BUT CANNOT HELP WITH A COST-ESCALATION GUARANTEE. IF, HOWEVER, THE
RIGLO/ITALIAN GROUP HAD A GUARANTEE AGAINST COST-ESCALATION BETWEEN 5 PER CENT AND 10 PER CENT (ANYTHING MORE BEING FORCE MAJEURE) THE ANCLO/ITALIAN CEILING PRICE COULD BE BROUGHT TO A LEVEL WHICH SHOULD KEEP THEM IN THE COMPETITION.
/4.
CONFIDENTIAL