SECRET
MDHI
173067 3219
MOD'S POSITION
4. WE RE-EXAMINED MODS EARLIER PROPOSAL THAT HKG FOREGO ITS 75 PERCENT SHARE IN THE RESIDUAL VALUE OF THE CRAFT IN EXCHANGE FOR MOD CONTINUING TO MEET IS 35 PERCENT SHARE OF THE OPERATING COSTS BETWEEN 1992 AND 1997. WE COULD NOT ACCEPT THIS PROPOSAL AS IT WOULD BE A RADICAL DEPARTURE FROM THE 65:35 COST SHARING ARRANGEMENTS AND WOULD CREATE DIFFICULTIES FOR HKG IN THAT FINANCE COMMITTEE WOULD HAVE TO BE ADVISED.
5. MOD'S SECOND PROPOSAL WAS THAT HKG MEET HALF OF MODS 35 PERCENT OF THE OPERATING COSTS OF THE VESSELS BETWEEN 1992 AND 1997, CURRENTLY ESTIMATED AT SOME POUNDS STERLING 7.5 MILLION. WHILST THIS PROPOSAL LEAVES THE RESIDUAL VALUE OF THE VESSELS UNTOUCHED, FINANCE COMMITTEE'S APPROVAL WOULD HAVE TO BE OBTAINED SINCE THE PROPOSAL GOES BEYOND THE AGREED 65:35 SHARE, AND WOULD
ENTAIL HKG MEETING SOME 82 PERCENT OF THE COSTS OF THE VESSELS.
6.
MOD DID NOT ACCEPT THAT FINANCE COMMITTEE NEED BE CONSULTED AND PROPOSED THAT PAYMENT COULD BE EFFECTED OVER A 5 YEAR PERIOD BY ARTIFICIALLY INFLATING THE MANPOWER CAPITATION ELEMENT OF THE DCA QUARTERLY ACCOUNT. WE FIRMLY REJECTED THIS PROPOSAL AS IT APPEARED TO CONSTITUTE A DELIBERATE ATTEMPT TO DECEIVE THE FINANCE COMMITTEE. WE EXPLAINED THAT ANY PROPOSAL TO BE ACCEPTED BY THE HKG WOULD HAVE TO BE CONSISTENT WITH THE PROVISIONS OF THE PUBLIC FINANCE ORDINANCE AND BE CAPABLE OF WITHSTANDING PUBLIC SCRUTINY SHOULD THIS ARISE.
COMMENT
7. THE MOD TEAM WILL REPORT TO MINISTERS THAT THEY HAVE BEEN UNABLE TO REACH A SATISFACTORY FINANCIAL SETTLEMENT WITH THE HKG AND WILL RECOMMEND THAT MINISTERS REVERT TO THEIR EARLIER
DECISION TO WITHDRAW THE PATROL CRAFT IN 1992. MOD WILL PROBABLY EXPRESS DISAPPOINTMENT THAT WE HAVE BEEN UNABLE TO AGREE TO THE PROPOSAL AT PARA (5) ABOVE.
8.
THE DIFFICULTY WE HAVE FACED IN THE LATEST ROUND OF DISCUSSIONS IS THAT MOD HAS CHOSEN TO FOCUS ON THE PURELY FINANCIAL ASPECTS OF THE CONTINUING PRESENCE OF THE PATROL CRAFT IN HONG KONG AFTER 1997, AND APPEAR TO HAVE IGNORED THE WIDER IMPLICATIONS OF THEIR WITHDRAWAL. IN OUR VIEW THERE IS A CLEAR DEFENCE CASE FOR THE RETENTION OF THESE VESSELS, IN VIEW OF THE NECESSITY FOR ADEQUATE FORCE (WHICH COULD NOT BE PROVIDED ENTIRELY BY THE MARINE POLICE) TO DETER, FOR EXAMPLE, ARMED
PAGE
SECRET
2
Page 45Page 46