432
124
undertaking. It is felt that the Shing Mun waterworks in the New Territories are of such magnitude, both on their financial and engineering side, that it is quite inappropriate to regard them as a mere extension of the waterworks existing on Hong Kong Island and Kowloon in 1896. The first section of the Shing Mun waterworks, which has been under construction since 1924, is now estimated to cost more than $4,600,000. The second section, which has just been sanctioned and which will involve the construction of a masonry dam to impound water to a depth of about 200 feet, giving a storage capacity of approximately 3,000 million gallons, is estimated to cost $9,300,000. The dam will take five years to build and will exceed in height almost any existing dam in England. In order that the Army Council may appreciate the magnitude of the Shing Mun water- works scheme, I am to enclose a copy of Hong Kong Sessional Paper, No. 4 of 1929*. Since the date of the Report in that paper considerable modifications have been made in details, particularly as regards the second section of the scheme.
3. In paragraph 13 of your letter under reference you point out that the memorandum by Lord Haliburton of 8th June, 1899, from which a quotation was made in the Colonial Office letter of the 20th of November, 1981†, was directed in the main to the treatment on the basis of net receipts of new industrial undertakings. It is felt strongly that it would definitely be in accordance with the policy suggested in the passage quoted, viz., that we "' should meet the Colonies with every concession that is consistent with the preservation of the contributions," if the Army Council concede to Hong Kong the right to treat the Shing Mun waterworks on the net receipts basis as a new productive undertaking.
4. As regards paragraph 8 of your letter, it is not desired, in view of your explanation of the origin of Section 3 of the Hong Kong Defence Contribution Ordinance No. 1 of 1901, to urge that the interpretation suggested by the Hong Kong Deputy Treasurer should be accepted.
5. As regards paragraph 9 of your letter, I am to state that any attempt to repeal Section 15 of Ordinance No. 14 of 1927 would meet with the strongest opposition in Hong Kong. A copy of your letter of 25th April was sent to the Hong Kong Government, and I am to enclose, for the information of the Army Council, a copy of a telegram received on the 30th of July. It will be observed that the Acting Governor refers to a new loan, and I am to furnish the following explanation of the development programme which Hong Kong proposes to finance from loan funds.
6. The Public Works Loan Ordinance No. 14 of 1927 made the following provision: —
1. Waterworks development
2. Aerodrome and harbour development
3. Other public works
$
3,500,000
1,000,000
500,000
$5,000,000
Item 1 was for the first section of the Shing Mun scheme, the revised estimate for which is now $4,631,815. The second item includes the contribution of the Colony towards the formation of an aerodrome which will be partly for military purposes and partly for civil purposes. It also includes certain dredging operations which will be useful both for the development of the harbour and for the purpose of forming the aerodrome. The revised estimate for the Harbour Department is $416,729, and for the aerodrome, after deducting the contributions from the Imperial Government, is $1,386,467. Item 3 was a general item, inserted to bring the loan up to the round figure of $5,000,000. Under Clause 3 (2) of the Ordinance, the $500,000 provided under Item 3 has been appropriated towards the excess expenditure under Items 1 and 2.
7. It will be noted that the revised estimate of expenditure on Items 1 and 2 exceeds the total of $5,000,000 by $1,435,011. That sum has been advanced from surplus balances, but will be repaid when the new loan is issued.
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8. The schedule for the new loan has not yet been definitely fixed, but it is approximately ás follows:-
1. Completion of Items 1 and 2 in 1927 loan schedule
2. Shing Mun Valley scheme, second section
3. Aberdeen Valley water scheme
5. General installation of water meters (20,000 meters)
$
1,435,000
9,200,000
2,702,000
4. Improvement and extension to water mains in City and
Kowloon
1,000,000
1,200,000
6. Development of catchwater areas, minor reservoirs, filtra-
tion plant, etc.
1,000,000
1,500,000
4,500,000
5,000,000
$27,537,000
7. Vehicular ferry
8. New gaol
9. Redemption of 1927 6 per cent. loan
9. It is proposed that this large loan for development purposes should be issued locally in instalments, as the money is required. The term of the loan will probably be 25 years from the date of each issue, and repayment will probably be by means of drawings after the 5th year for the balance of the 20 years by equal annual payments. Extra taxation will be necessary to provide funds for the interest on, and repayment of, this large loan. It will be found partly by increased payments for water, when water meters are generally installed, and partly probably by an increase in the assessed taxes.
10. It will be noted that the loan proposals include the redemption of the Public Works 6 per cent Loan of 1927, as it is hoped to replace it by a loan at a lower rate of interest. If that is done, Ordinance No. 14 of 1927 will cease to be operative and the question of repealing Section 15 of it will not arise, but I am to urge most strongly that the Army Council should agree that a clause similar to Section 15 of the 1927 Ordinance should be included in the new Loan Ordinance when it is enacted. Unless the interest on the new loan and the sums required for its redemption are exempted from military contribution, the costs will be so increased that the development pro- gramme will have to be seriously retarded. It need hardly be pointed out that all the items of the new loan schedule with the exception of the gaol are revenue producing and that, if and when the full development programme is completed, it will effect a very substantial increase in the normal revenue of Hong Kong on which military con- tribution will be payable.
11. As regards paragraphs 10 and 11 of your letter, it is noted that the Army Council draw a distinction firstly between book profits and actual profits, and secondly between the profits arising from sterling appreciation of the securities and profits arising from depreciation of the Hong Kong dollar. As regards the first, I am to point out that the considerations put forward in the Colonial Office letter of 20th November, 1931, apply just as much to realized profits and losses as to book profits and losses. If such profits, whether realized or not, are included in the revenue liable to assessment, it should be admitted as a corollary that deductions should be made for losses. Moreover, it is felt that it is not proper to draw a distinction between changes due to ordinary appreciation or depreciation of securities and changes due to alterations in the value of the Hong Kong dollar. The latter are, in fact, much the more important of the two, and it is not possible to confirm the Army Council's understanding that the amount involved can only be very small.
12. As regards paragraph 12 of your letter, I am to state that the question of making separate provision for investments from land sales revenues and the income arising from such investments is receiving consideration.
13. A copy of this letter has been sent to the Treasury.
I am, &c.,
H. R. COWELL.
• Not printed here.
↑ No. 73.
‡ No. 77.
PUBLIC RECORD OFFICE
Reference :-
PLEC.O. 882/11
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PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH-NOT TO