FAR EASTERN ECONOMIC
VIEW
Sel. ber 5, 1968
The final decision clearly depends now on the attitude of the British Export Credit Guarantee Department (ECGD). Spokesmen for the Tunnel Company state that Lloyds Bank in Britain has agreed to provide the necessary finance on terms to be agreed. However, the ECGD, which has been asked to underwrite the bank loan, has been insisting on terms and conditions for a British Government guarantee to back the project which the Cross-Harbour Tunnel Company has regarded as unduly onerous. The debate over the terms of an export credit guarantee has dragged on for months.
The ECGD's side of the case is that it must look for reasonable security as collateral for any guarantee that it offers. The kind of security that the ECGD prefers for a major engineering project like the tunnel is strong ñnancial backing from the Government of the territory. In this case, any default on the part of the construction company would be met either by the Government or by its central bank, and the loan would be repaid from official reserves or other assets.
The Hongkong administration is in a difficult position on the tunnel issue because the Government is reluctant to become too heavily involved in the project in view of the risk that, in case of difficulties, it might have to take over the actual running of the tunnel. "It is really a matter of priority of expenditure,” said one spokesman, "the Government does not regard this project as absolutely necessary. There are other things which we are more anxious to spend public funds on apart from this project." Senior officials suggest that the Government is willing to take a substantial part in the project (it has been offered a 25% share of the equity in the cross- harbour tunnel) although it would become a shareholder. somewhat reluctantly. However, authoritative sources indicate that the ECGD is seeking more from the Hongkong Govern- ment than mere financial involvement in the success of the tunnel.
The Tunnel Company itself is absolutely convinced that the project is in no danger of failing financially. But happy forecasts of high returns are not sufficient to allay the Govern- ment's fears that it might have to take more direct respon- sibility for the management of the cross-harbour tunnel than it would like. Those promoting the tunnel make no secret of the fact that once the project is actually under construc- tion, they will be anxious to let the public in on a good thing through floating an issue of public convertible stock. This could well lead to a wide dispersal of ownership of the Company's shares, leaving the Government as the major share- holder. With all that this implies in the formulation of company policy and responsibility for its management.
Clear Statement
The Government's caution dates back to 1957 when it decided that an official subsidy for the venture would be unjustified. The authorities indicated, at the same time, that they would not stand in the way of any private concern which wished to build a tunnel linking Kowloon with Hongkong. Although the Government's interest in taking up part of the equity now seems certain, the proposal has still to come before Legislative Council. Clearly, the Tunnel Company will have to offer the shares on acceptable terms if Legislative Council is to be satisfied that it is in the public interest to make such a substantial investment in this project. Official circles suggest that government participation will have to be accompanied by a clear statement that the administra- tion will not undertake responsibility for repayment should
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the Tunnel Company for some unforeseen reason fail to pay off its loan as scheduled.
The Tunnel Company might have been able to cut through its problems with the ECGD had it been able to offer some form of cast-iron security for a loan as an alter- native to government backing. A guarantee from any of the larger commercial banks operating in Hongkong might have done the trick. Here the Colony runs into one of its old problems: commercial banks are simply not in a position to get involved in such ambitious projects when their money would be at risk for so long a period of years. (Does this indicate, once again, the need for a Development Bank in Hongkong?)
Anxieties
The Tunnel Company is thus stuck with the Govern- ment. It is interesting that when the authorities declined to support a cross-harbour tunnel in 1957, they argued that the project would find it difficult to generate sufficient traffic to prove really profitable. The forecasts that have been prepared since on the volume of traffic which can reasonably be expected to flow through the tunnel are still the subject of much debate in transport circles naturally, since they involve predicting developments in a rapidly-changing Hong- kong for almost a decade ahead. (In the last 10 years, average earnings have doubled in Hongkong; who can say what incomes will be in 1978 and how they will affect the pattern of car ownership?) The trouble for the Tunnel Company is that it is on the forecasts of future traffic that their calculations of the likely profits of the venture must be based. Doubts about the traffic forecasts inevitably lead to anxieties about revenue predictions.
The Company anticipates that it will attract a minimum of 26,000 vehicles a day to the tunnel immediately it is com- pleted. This compares with the average of 12,000 vehicles which now cross the harbour daily on the Hongkong and Yaumati ferries. The difference between the Tunnel Com- pany's projection and the current volume of cross-harbour traffic is the source of much of the scepticism which has
Road works under construction: the PWD claims that it is not holding back road construction because of the delays over the Cross-Harbour Tunnel, but how efficient can transport planning be while the fate of this important project is still in the balance?
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