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Mr. Godden
I mentioned to Lord Shepherd last week that I was contemplating asking him to intervene with the Board of Trade about the conditions ECGD were requiring for their cover of the proposed bank loan (originally £10 million, now £12 million) for the Hong Kong tunnel. Broad hints to this effect had been dropped to me direct by Mr. Sowden of Costains and by Colonel Clague via Mr. Haddon-Cave. The Minister agreed to consider intervention if I put up the case.
2.
Early this week Colonel Clague rang me and said he proposed to go once more to the Prime Minister. I told him that Lord Shepherd, on his return from Gibraltar, would be considering whether to take the matter up with the Board of Trade. He agreed to stay his hand. I had to say that you would let him know whether the matter was to be taken up. He suggested that he might be able to help the Minister and added that, in any case, he would like to see him. Colonel Clague's telephone number is ASCOT 21145.
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3. The Tunnel Company objects strongly to the requirement of a joint guarantee from the share- holders. The case for the Minister's intervention
is set out in the attached draft letter to Mrs. Dunwoody. ECGD will, I think, deny that in asking for a joint guarantee they are actuated primarily by their concern for the political risk: they will say that it is a reasonable requirement having regard to the nature of the project and to prudent commercial underwriting practice (which they are required to follow). And I must admit that there are factors which might justify their caution on purely commercial grounds. Sir J. Cowperthwaite has made no secret of his doubts about the traffic forecasts on which the tunnel revenues are based; however, although he does not think it will be a money-spinner, he has not doubted that it will pay its way.
The principal private shareholders in the Tunnel Company have not inspired confidence by the way in which they sought in the latter half of last year to reduce the equity and their share thereof. Nevertheless I recommend that we make one more effort to get the joint guarantee reconsidered. If we fail to get it withdrawn, as a condition, we need press no further and at least it will be known that we made an effort on behalf of the project. If we succeed I cannot think that there is any real danger that either the commercial or the political risk will cause ECGD eventual loss.
4. For the Minister's information, I set out below a short history of ECGD's quest for guarantees in connection with this project :-
(a) Joint and several guarantees were an
ECGD condition in the original negotiations early in 1967. For reasons not known to me ECGD dropped the joint guarantee in April 1967.
/ (b) ...
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