GRS 319
PRIORITY
CYPHER CAT/A
RECEIVED IN
REGISTRY NO 52
14 MAY:974
FM HONG KONG 149415Z INKK Tof
CONFIDENTIAL
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TO PRIORITY F C O TELEGRAM NUMBER 531 OF 14 MAY, 1974.
MY TELEGRAM NO 499: ADDITIONAL CONTRIBUTION TO DEFENCE COSTS.
1. TALKS ENDED YESTERDAY IN PROVISIONAL AGREEMENT BETWEEN THE
HONG KONG AND U.K. GOVERNMENT REPRESENTATIVES. THE AGREEMENT IS
OF COURSE SUBJECT TO RATIFICATION BY BOTH GOVERNMENTS.
2. DISCUSSIONS WERE AMICABLE BUT HARD AND PROLONGED, PARTLY BECAUSE THE U.K. NEGOTIATORS HAD NOT APPRECIATED THE BUDGETARY
SITUATION HONG KONG IS NOW FACING. THE TERMS OF THE AGREEMENT
ARE AS FOLLOWS:
A) THE HONG KONG GOVERNMENT WILL MAKE AN ADDITIONAL CONTRIBUTION
OF DOLLARS 30 MILLION TOWARDS INCREASED BUILDING COSTS. THIS
SUM REPRESENTS, IN ROUNDED UP TERMS, THE ESTIMATED INCREASE IN BUILDING COSTS ABOVE 150% AT 1971 PRICES APPLIED TO THE
UNSPENT BALANCE OF THE CAPITAL CONTRIBUTION, THE ESTIMATE IS
BASED ON AN ASSUMED ONE AND ONEHALF PERCENT INCREASE PER MONTH COMPOUND FROM NOVEMBER 1973, WHEN THE 50% INCREASE OVER 1971 WAS REACHED, UNTIL MARCH 1976.
(B) IF BUILDING COSTS IN FACT INCREASE BY MORE THAN ONE AND ONEHALF
PERCENT PER MONTH COMPOUND, THE HONG KONG GOVERNMENT WILL INCREASE ITS CONTRIBUTION ACCORDINGLY, SUBJECT TO A MAXIMUM OF TWO PERCENT PER MONTH COMPOUND (WHICH WOULD BE DOLLARS 38 MILLION).
(C) AS AN ALTERNATIVE, TO AVOID A CONTINUING ADJUSTMENT, A
COUNTER PROPOSAL BY THE U.K. TEAM THAT WE SHOULM MAKE A
CONTRIBUTION OF DOLLARS 35 MILLION REGARDLESS OF PRICE
CONFIDENTIAL
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