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Department of Trade
Overseas Frojects Group
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BRITISH TRADE COMMISSION IN HONG KONG
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6 August 1974
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12 AUG1974
1. I see from Tom Aston's report on his de-breifing that he suggested that the Governor should be asked what was going on with the Mass Transit System, whether the Japanese were wriggling on price and/or design and, if so, whether consideration should be given to the bids being re-opened. I have spent my first fortnight here getting my more important consular calls out of the way and, at the same time, call-
In the ing on heads of Government departments and leading businessmen and bankers. course of these visits I picked up a certain amount of information about where we stand on the System, which may be of interest.
2. The position, as I understand it, is that the Japanese have signed a letter of intent to negotiate a contract and the consultants have produced a design which is now the subject of discussion with the Japanese. A Japanese engineering team has already been down to Hong Kong and a Hong Kong Government team leaves for Japan this week to carry the discussions a stage further. I have not felt it politic in my first calls on heads of departments to press them too hard on the detail, but I was told gratuitously that the Japanese had suggested modification to the design to provide for longer trains and, therefore, larger stations. I understand, however, that the Hong Kong Government took the line that this would cause problems with air-conditioning and that they preferred to stick to the original concept.
3. The Acting Director of the Mass Transit System put it rather well to me when he said that normally in a large engineering project one has two variables - engineering design and price. In this case the only variable was the engineering design (which suggests that the Japanese are not wriggling on the price). Clearly there will be some hard bargaining ahead on the design, but I find it a little hard to believe that the Hong Kong Government, advised both by their consultants and their own technical people, will be prepared to accept a sub-standard system. At the end of the day, whether or not a contract is signed seems likely to depend on the size of the loss the Japanese are prepared to incur, rather than any major modification to the system. The general view expressed by leading businessmen here is that having committed themselves to the project, the Japanese will not lose face, however expensive this is; that they will be prepared to write off a fair amount as a loss leader for future projects; and, as Henry Keswick of Jardine latheson put it, there are sources of finance, such as profits made in commodity speculation, which can be used to offset any loss incurred. Keswick told me, incidentally, that while he could not guarantee that the Japanese would sign a con- tract, he was reasonably confident that they would do so.
4. As to the financing of the project I understand that HK$3,000 million will be met by Japanese Export Credit, and that it is the Government's hope that the remaining HK$200,000 will be raised by bridging loans raised locally or loans raised in the Euro Dollar Market.
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cc: Mias C Welch, CR#2
Er A C Stuarto
I AC Kinnear
Senior Trade Commissioner
TenChat the information given herein is accurate, but no legal responsibility is accepted for any errors or omis
sions in that information and no responsibility is accepted in regard to the standing of any firms, companies, or individuals mentioned.