XN000022-1975-01-14 — Page 2

TUESDAY, JANUARY 14, 1975

STATEMENT BY THE MASS TRANSIT RAILWAY PROVISIONAL AUTHORITY

JAPANESE CONSORTIUM WITHDRAWS FROM NEGOTIATIONS

THE JAPANESE CONSORTIUM HAS INFORMED THE MASS TRANSIT RAILWAY PROVISIONAL AUTHORITY- THAT IT IS UNABLE TO CONTINUE NEGOTIATING A CONTRACT TO BUILD, EQUIP AND FINANCE THE FIRST FOUR STAGES OF THE MASS TRANSIT‍ RAILWAY WITHIN THE CONTEXT OF THE LETTER OF INTENT SIGNED ON 15 FEBRUARY 1974.

THE CONSORTIUM HAS GIVEN, AS ITS REASON FOR DECIDING TO WITHDRAW FROM THE NEGOTIATIONS, THE DIFFICULTIES EXPERIENCED BY THE JAPANESE ECONOMY AS A RESULT OF THE OIL CRISIS IN LATE 1973 AND 1974. THE CONSORTIUM CLAIMS THAT THE MAGNITUDE OF THESE. DIFFICULTIES COULD NOT HAVE BEEN REASONABLY FORESEEN AT THE TIME IT SIGNED THE LETTER OF INTENT AND THAT THEY COULD NOT NOW BE SURMOUNTED. AT A MEETING HELD IN NOVEMBER 1974 THE CONSORTIUM ASKED FOR A REVISION OF THE PRICE CEILING FROM 5 BILLION H.K. DOLLARS TO 6 BILLION H.K. DOLLARS TOGETHER WITH PROVISION FOR PRICE ESCALATION.

THE PROVISIONAL AUTHORITY COULD NOT ACCEPT THIS REQUEST. IT HOLDS THE VIEW THAT THE CONSORTIUM SHOULD HAVE BEEN ABLE TO ASSESS THE EFFECTS OF THE OIL CRISIS ON JAPAN'S ECONOMY DURING THE PERIOD BETWEEN THE HONG KONG GOVERNMENT'S ACCEPTANCE OF ITS

* PRE-EMPTIVE BID (11 DECEMBER 1973) AND THE TIME IT SIGNED A LETTER OF INTENT (15 FEBRUARY 1974). THE PROVISIONAL AUTHORITY THEREFORE CONSIDERS THAT THE CONSORTIUM HAS COMMITTED A SERIOUS ERROR OF JUDGMENT WHICH WILL RESULT IN HONG KONG SUFFERING AT LEAST A YEAR'S DELAY IN BUILDING THE MASS TRANSIT RAILWAY WITH ALL THE ATTENDANT CONSEQUENCES.

THE PROVISIONAL AUTHORITY THEREFORE ASKED THE CONSORTIUM FOR COMPENSATION. AT A MEETING HELD ON 9 JANUARY THE CONSORTIUM REFUSED TO PAY COMPENSATION, BUT OFFERED A NOMINAL EX GRATIA PAYMENT OF 300 MILLION YEN (EQUIVALENT TO ABOUT 5 MILLION H.K. DOLLARS), SUBJECT TO CERTAIN CONDITIONS. THE GOVERNMENT CONSIDERED BOTH THE AMOUNTS AND THE CONDITIONS OF THIS OFFER QUITE UNACCEPTABLE AND THEREFORE REJECTED IT.

A SPOKESMAN FOR THE PROVISIONAL AUTHORITY SAID TODAY THAT, IN RETROSPECT, THREE IMPORTANT POINTS STAND OUT IN THE NEGOTIATIONS WITH THE JAPANESE CONSORTIUM.

FIRST, THE CONSORTIUM'S PRE-EMPTIVE BID WAS ACCEPTED FOR A VARIETY OF REASONS, THE TWO MOST IMPORTANT OF WHICH WERE THAT IT OFFERED A PRICE WITHIN THE GOVERNMENT'S CEILING PRICE OF 5,000 MILLION H.K. DOLLARS WITHOUT SUBSEQUENT COST ESCALATION OF ANY KIND, AND THAT IT ALSO HELD OUT THE POSSIBILITY OF AN EARLY START AND AN EARLY COMPLETION OF THE PROJECT (ASSUMED FOR MID-1979). NEITHER OF THESE ADVANTAGES HAS MATERIALISED THROUGH NO FAULT OF THE HONG KONG GOVERNMENT OR THE PROVISIONAL AUTHORITY.

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