TNAG-0098-FCO40-134-Construction-of-a-Cross-Harbour-Tunnel-1968 — Page 41

Many hanks. "ABB30

Mr. Brighty,

Private Office.

CONFIDENTIAL

138

Mr. Barley

Plse register a

S must

recric, on the. write to Hong Kong,

HONG KONG HARBOUR TUNNEL

I understand that Lord Brown, Minister of State in the Board of Trade, has seen Colonel Clague to-day to inform him that Ministers see no reason to intervene in the matter of conditions required by ECGD for covering a U.K. bank loan of £12 million to the Tunnel Company. This decision follows upon recent Ministerial exchanges on the subject between Board of Trade, Treasury and the Commonwealth Office.

2. As a condition for their cover of this loan ECGD have asked for :

(a)

(b)

Joint and several guarantees from each of the shareholders (including the Hong Kong Government),

or

several guarantees from the shareholders backed by a 100% guarantee of the entire loan by the Hong Kong Government.

They justify (a) and (b) as normal prudent underwriting practice. However, the Hong Kong Government is not prepared to guarantee the entire loan and, with the other shareholders, objects to giving a joint guarantee.

a

3. The Commonwealth Office (and the Treasury) are not disposed to query ECGD's judgment as to the right underwriting standards to adopt. Nor in the view of the Commonwealth Office are there any special political considerations that might justify the departure from normal underwriting standards. The Hong Kong Government's attitude to the project is lukewarm: it has not, in their view, a high priority. And no longer has this project the political significance it had at the height of last year's crisis when it tended to be regarded as a symbol of confidence in the Colony's future existence.

4. The Commonwealth Office notes, however, that ECGD were prepared to rely on several guarantees only in April 1967, i.e. before the communist confrontation in Hong Kong commenced. The recent ministerial correspondence indicates that ECGD are still much concerned about the political risk of a Chinese take-over in Hong Kong, which we assess now to be only marginally greater than it was before last year's crisis or, for that matter, at any time since the communists came to power in China. This Department has a suspicion (possibly unworthy) that ECGD's assessment of the underwriting requirements is not entirely related to the normal commercial risks in a project of this nature but is coloured by a possibly excessive anxiety over the political risk.

5.

I attach a copy of this minute which you may wish to transmit to the Prime Minister's Office.

Carter

5.

3479

(W. S. Carter)

26 September, 1968