CONFIDENTIAL
ANNEX A
of the schono.
Hong Kong: Cross-Harbour Tunnel
A separate background note is attached giving the previous history
This note scts out the present position of H.M.G. and, in
the main, has not boon put formally to the Government of Hong Kong although the Financial Secretary (Mr. Cowperthwaite) is aware of the trend of our
thinking,
2.
The Tunnol Company proposed to financo about £10 million of the cost of
the construction of the tunnel by commercial credit arranged by the contractor.
The background note records that whon this project was considered as a
commercial proposition, E.C.G.D. askod for guarantoos which the Department
wore satisfied that at that time the main commercial shareholders were ready to
provide but which later they refused to give. E.C.G.D. considered that, in
these circumstances, it could only continue to participato if an unconditional
guarantoo was provided by the Hong Kong Government. This has not been put formally to the Hong Kong Govornnent.
3•
The nood for guarantoos stems from the commercial nature of E.C.G.D.
In its fully commercial operations, under Section 1 of the Export Guarantees
Act of 1949, E.C.G.D. is roquired to broak oven, Under Section 2 of the Act (under which it is now proposed to underwrite the tunnel project) E.C.G.D.
nay take "in the national interest" risks not otherwise thought commercially
acceptable. When this legislation was first introduced, the President of the
Board of Trade thon Mr. Harold Wilson undertook that this would not bo
used to underwrite unduly hazardous or "quito crazy risks". E.C.G.D. are thus,
under both Sections of the Act, required to operate with commercial prudenco.
If risks arc largo, and particularly when borrowers' have no uncommitted capital
or assots other than the insured project, commercial prudence requires then to
look for a suitable guarantee.
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4. In E.C.G.D's viows (supported by the Treasury) the prosent case is onc
in which a guarantoc from the shareholders would no longer be appropriato
and a full guarantoo by the Hong Kong Government is essential. In view of
H.M.G's wish for political reasons to make a gesture of support to and confidence
in the Hong Kong economy, it has boon agrood that the Commonwealth Office nay
tako the oxcoptional stop of undertaking to meet half the cost of any call on
the guarantco provided that contacts for loan and the construction and supply arc such as E.C.G.D. can support (soc paragraph 7 bolow) and subject to the further conditions in paragraph 6 below. H.M.G's guarantee is for 50% of a
Hong Kong Governmont guarantee of a loan of £10 million plus interest. Those
proposals have not yet been put formally to tho Hong Kong Government.
/5. If E.C.G.D.
CONFIDENTIAL
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