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28.
Recital (C)
refers to the intention of both sides that the AA should assume management control of Kai Tak airport before the date on which the new airport is due to This will enable the АА to gain operational experience and establish a record of successful airport management.
It will also facilitate a smooth transfer of airport operations from Kai Tak to Chek Lap Kok.
open.
Equity
29.
As demonstrated in the financial analysis, in addition to the need for paid-up equity of $13.6 billion at March 1991 prices, there will be a need for Government to provide additional equity support in the event of certain adverse circumstances.
The analysis showed that callable equity of up to $8.5 billion at money of the day prices or $5.9 billion at March 1991 prices might be needed in the unlikely event of the combination of adverse circumstances tested in the 'low case'.
30.
The draft agreement with the PAA sets out how this callable equity may be drawn down. On each occasion that the AA seeks to draw down such equity it will need to report fully to the Government's satisfaction the circumstances which have led to the events concerned and satisfy Government that all reasonable measures would be taken to reduce to a minimum any further call on such equity. In addition, the close monitoring of costs and other progress in the project by senior Government officials appointed to the AA Board will enable the Government to ensure all appropriate measures are taken to avoid drawing on the
callable equity.
31.
The draft agreement provides that callable equity may be drawn in the event of
a)
b)
c)
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Increase in Project Cost - an increase in the originally estimated project cost prior to completion of the airport. Project cost includes the cost of construction and the AA's management and financing costs;
Shortfall in Real Estate Revenues - a shortfall in revenues from real estate developments below the level forecast in the 'base case' up to the opening of the airport in June 1997; and
Project Delay
support will be called only to the extent that the surplus from Kai Tak is insufficient to cover the AA's scheduled debt service payments and other costs arising during the period of delay.