CONFIDENTIAL
COSTS
13. As will be clear from paragraphs 2 to 4, the procurement of any new vessels to
replace the existing patrol craft will occur within the timescale of the existing DCA,
even if the delivery of some of them might not take place until after its termination
in 1983. Although it might be possible to argue a case for the Hong Kong Government
being asked to pay the full costs of replacement vessels (especially if they were to be
purpose-built for the Hong Kong task) it has already been agreed (paragraph +) that
costs (capital and running) will be shared on the same basis as those of the remainder
of the garrison, i.e. 25% by HMG and 75% by the Hong Kong Government.
could be argued by the Hong Kong Government that were they to be required to pay the
total capital cost of such vessels they should be the property of the Hong Kong
Government; MOD would clearly not wish this to be the case. Also, the Royal Navy would
acquire several new vessels, with an expected life of 20 or more years, at 25% of their
capital cost, with 75% of their running costs paid for so long as they are required to
operate in Hong Kong waters.
Furthermore, it
14. It is therefore recommended that the cost-sharing basis to be proposed to the
Hong Kong Government should be the 75/25 apporticnment, although we shall need to
ensure that both we and they are quite clear as to what is the total cost to which
they are being asked to contribute three-quarters Running costs should be relatively
simple to assess, in that we have the existing basis to rely on, but capital cost would
include a number of overheads (e.g. R & D, design work, overseeing) the scale of which
would depend upon whether they were 'off-the-shelf' or of new design, where the vessels
were to be buili, and other such factors.
15. Because it is not yet possible to determine precisely the type and location of
build, neither is it possible to put more than an order of capital cost upon the
replacement. Assuming that the replacement was to be 5 new patrol craft, however, the
capital cost woula he likely to be in the range £M to £M
7
J.
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CONFIDENTIAL