SECRET
FM HONG KONG
TO IMMEDIATE F C O
TELNO 3205
OF 02102OZ NOVEMBER 90
SECRET
HKC 062/
45
027100
MDHIAN 7402
TOP COPY Q DIST?
PERSONAL FOR PAUL HKD, FROM GOVERNOR
HEB 175/1 16
YOUR TELNO 1988: ROYAL NAVAL PRESENCE IN HONG KONG
I AM GRATEFUL FOR YOUR OFFER TO HELP ON THE LONG-RUNNING SAGA. WE ARE CONTINUING TO SEEK AN ARRANGEMENT WHICH WILL MEET BOTH OUR AND MOD'S NEEDS WITHIN THE AGREED 65:35 COST SHARING ARRANGEMENTS OF THE 1988 DCA. BUT PROGRESS, IF ANY, IS VERY SLOW.
2 =
THE PRESENT STATE OF PLAY IS THAT WE HAVE PROPOSED TO MOD THAT THE HKG'S SHARE OF THE PROCEEDS FROM STORES ETC. PURCHASED UNDER THE 1981, AND POSSIBLY THE 1988 DCA SHOULD BE INCREASED FROM 65 PER CENT TO 75 PER CENT, AND THAT THIS SHOULD BE OFFSET AGAINST AN ADVANCE TO MOD OF THEIR 35 PER CENT SHARE OF THE PEACOCK'S RECURRENT OPERATING COSTS BETWEEN 1992 AND 1997. WE HAVE PROPOSED THIS FORMULA OF AN ADVANCE PAYMENT BECAUSE MOD SAID THAT CASH FLOW WAS THEIR PROBLEM. THIS IS THE ONLY METHOD WHICH WILL ALLOW US TO GENERATE THE CASH THAT MOD NEED WITHOUT GOING TO FINANCE COMMITTEE AND RUNNING THE RISK OF REOPENING THE WHOLE QUESTION OF COST-SHARING UNDER THE DCA.
3.
AN ALTERNATIVE SUGGESTION FROM MOD THAT WE SHOULD GIVE UP OUR CLAIM TO THE DEPRECIATED VALUE OF THE VESSELS IS A NON- STARTER FOR US BECAUSE IT WOULD REQUIRE FINANCE COMMITTEE'S AGREEMENT FOR WHAT WOULD AMOUNT TO A CLEAR DISTORTION OF THE 65:35 RATIO. THAT AGREEMENT WOULD PROBABLY NOT BE FORTHCOMING AND ATTEMPTING TO GET IT WOULD REOPEN A LARGE CAN OF WORMS.
4.
MOD'S RESPONSE SO FAR HAS BEEN DISAPPOINTING. THEY HAVE NOT ACTUALLY REJECTED OUR PROPOSAL. BUT THEY ARE RELUCTANT TO PROVIDE AN ASSESSMENT OF WHETHER THE CASH YIELD FROM THE PROPOSED INCREASE IN THE PROCEEDS FROM THE STORES WOULD BE LIKELY TO COVER 35 PER CENT OF THE OPERATING COSTS OF THE PATROL CRAFT. THEY HAVE SIMPLY STUCK TO THE POSITION THAT RETAINING THE PATROL CRAFT WOULD MEAN AN ADDITIONAL CASH REQUIREMENT FOR THEM FROM MARCH 1992 AND THAT THERE ARE GREAT PRESSURES ON THE UK DEFENCE BUDGET.
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