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Our Ref:
2FE 17/68/01
DN Royce Esq
Department of Trade 1 Victoria street London SW1H OMT
22
n.
MA HANK
7/
1/ 565
Duz
O'Keeffe OIR
1975
7/7
will wish to consido? I do not dessent from any of this, but we should not appea vindictive to 4_K.
A
6/3
HONG KONG MASS TRANSIT SYSTEM
Thank you for sending us a copy of the note of your meeting on 21 February with GEC and their bankers, at which you discussed British firms' response to the forthcoming call for new tenders. I note that the main interest was said to lie in the mechanical and electrical equipment field, and this confirms earlier reporta we had heard on these lines.
2. Ellia Punton discussed with Ian Rich here on 29 January the question of ECGD cover for UK exports which he then estimated might be over £100m. I am glad to see that ECGD took a non-committal line on this at your meeting and implied (apparently without GEC dissent) that he terms would be much tougher this time round. With the prospect of having to provide cost escalation "insurance" HMG will be called on to pay a high price to secure UK exports and it is essential that credit terms should be tight. The terms approved for the UK consortium last time included capitalisation of interest, 15% Lending for local costs, 12 years' credit from 1980, and finance at C. e could not contemplate any of this now. Nor do we think it necesary to provide especially soft credit terms in order to influence Hong Kong's management of their sterling reserves.
3. I agree with Ellis Panton's remark (paragraph 6 of your minutes) that the UK must not lead in offering favourable terma on this occasion. Indeed, I would go further than that and argue that the UK should take an initiative now by seeking agreement with other credit insurers to a common pattern of terms. This would avoid another deplorable rate race of the kind which developed last time. I should be grateful therefore if ECGD would put this in hand immediately. I think the following pattern, which embodies ECGD's suggestion to set up a project line of credit, might serve as a starting point:
(a) Lending 85% of the UK element; no support for local costs.
(b) Repayment 10 years from mean commissioning or 1 July 1978
whichever is the earlier, subject to a sliding scale for total business worth less than £25m.
(c) Minimum contract value £2m.
(a) Interest rate 8% minimum; higher if possible.
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