CONFIDENTIAL
15.2
157257
MDHIAN 4814
CONFIDENTIAL
FM BTC HONG KONG
TO DESKBY 27150OZ DTI TELNO OTTER 144
OF 27103OZ JULY 89
INFO IMMEDIATE FCO
HD 301 Me Staple
FOR PEP AND OT2/2
MY TELNO OTTER 137: CABLE TV PROJECT
·Stare 231/7 Mr History
Mr O'Boylu Grapel. видов No 31/7
тра
1. IN MY TUR (NOT TO FCO) I REPORTED THAT THE TWO CONTENDING GROUPS FOR THIS MULT MILLION DOLLAR PROJECT HAD RECEIVED A LETTER FROM THE HONG KONG GOVERNMENT ON 18 JULY SUBSTANTIALLY CHANGING THE TERMS OF THE PROPOSED CONTRACT, BY INCREASING THE COSTS SUBSTANTIALLY TO THE WINNING GROUP. SINCE THEN THE HUTCHISON/BRITISH TELECOM GROUP HAVE HAD THREE MEETINGS WITH THE GOVERNMENT AT WHICH THEY HAVE SAID IN EFFECT THAT THE CONTRACT IS NOT VIABLE UNDER THE NEW TERMS. THE DEADLINE FOR ACCEPTING THEM WAS TODAY 27 JULY. BRITISH TELECOM TELL ME THAT AT A MEETING OF THE GROUP TODAY (CONSISTING OF SWIRES, THE HONG KONG AND SHANGHAI BANK AND CITIC AND OTHERS AS WELL AS HUTCHISON AND BRITISH TELECOM, BT HAVING A 24 PER CENT SHARE) THEY DECIDED THAT THEY HAD NO OPTION BUT TO RESPOND THAT THEIR BID STOOD ON THE BASIS OF THE OLD TERMS, AND THAT THEY COULD NOT MEET THE NEW TERMS PROPOSED IN THE GOVERNMENTS 18 JULY LETTER. (IN BRIEF, THE MAIN DIFFERENCES WERE AN EXPANSION OF THE CAPITAL EXPENDITURE COMMITMENT FROM HKD 5.5 BILLION AND ADDING HKD 1.2 BILLION TO THE ROYALTY PAYMENTS TO BE PAID BY THE WINNING PARTY: THE GOVERNMENT DID AGREE IN THIS WEEK'S NEGOTIATIONS TO EXTEND TO 7 YEARS THE EXCLUSIVITY OF THE LICENCE WHICH THE COMPANIES FOUND ACCEPTABLE).
2. HUTCHISON/BRITISH TELECOM FEAR THAT THE RIVAL GROUP WILL HAVE ACCEPTED THE NEW TERMS. THEY DO NOT BELIEVE THAT IT MAKES ECONOMIC SENSE TO DO SO, AND THEREFORE SUSPECT THAT IF THEIR RIVALS, HONG KONG CABLE TELECOMMUNICATIONS, LED BY Y K PAO'S WHARF HOLDINGS AND INCLUDING US WEST, HAVE ACCEPTED THE NEW TERMS, THEN THEY ARE VERY LIKELY TO HAVE TO RENEGE ON THEM LATER AND SEEK TO RENEGOTIATE. THEY BELIEVE THAT THE GOVERNMENT MAY BE STORING UP FUTURE TROUBLE FOR ITSELF IF IT ACCEPTS A BID ON THE NEW TERMS.
3. WE KNOW THAT THE RIVAL BID FROM HONG KONG CABLE
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