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XCS(73)12
of $5,000 million. As regards (c): a competitive negotiation would probably, in the end, produce a lower price from one or other of the consortia than would (b), but there is little indication that the two European consortia would be willing to risk coming down much below their present maxima until they have received full information on soil conditions and design specifications. The consequences of this course of action would then differ very little from the consequences of a return to the main sequence. Furthermore, it is very likely that, in such circumstances, the Japanese Consortium would wish to negotiate at a higher price level than in their present bid.
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It would, therefore, appear that either course (a) or course (d) would be the more attractive course of action to be taken. As regards (a): the Japanese Consortium's pre- emptive bid is valid only up to midnight on 11th December 1973 though it would remain open for the time taken to prepare a Letter of Intent. Should the Japanese bid be accepted, it would ensure the earliest possible start to the project at a known cost within the Government's ceiling. Subject to certain qualifications and assumptions, such as an acceptable definition of "force majeure" (yet to be negotiated) and a satisfactory standard of design and product, it would result in a financially viable project on the basis of the fare structure assumed. The main drawback to this bid is the insistence of the Consortium on a Government guarantee for the repayment of the debt. This could prejudice the ability of the Mass Transit Railway Corporation to pursue a policy on fares based on commercial considerations alone (or, at any rate, largely on such considerations). This is because, if the Corporation could, in the last resort, look to public funds to underwrite its debt commitments, public opinion might be hostile to fare increases required to achieve an adequate net cash flow; and this could have serious consequences for the Government's fiscal policy generally. The Japanese Consortium have argued that their request for a guarantee, which is normal Japanese Exim Bank practice, should be considered in the light of normal commercial practice, that is to say, as the Mass Transit Railway Corporation will be a wholly owned entity of the Hong Kong Government with a high loan gearing, a guarantee would be in accordance with such practice.
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It must also be borne in mind that the advantage that the Japanese pre-emptive bid enjoys over the two counter-bids is based on the assumption that the Japanese Consortium would see the project through, for the price contracted, in all
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