TNAG-0098-FCO40-134-Construction-of-a-Cross-Harbour-Tunnel-1968 — Page 97

Brief for Mr. Reed (FEP))

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BNEC

CROSS HARBOUR TUNNEL, HONG KONG

126

Private interests in Hong Kong have promoted a project for connecting Hong Kong Island und Kowloon by a road tunnel under the harbour Two large concerns (Wheelock, Marden & Co. and Hutchinson and Co.) are the principal shareholders; there are three lesacr shareholdere including the Hong Kong and Shanghai Bank; Kong Government has agreed to take up to a 25% interest.

the Hong

2. The construction contract for this project (worth about £16 million post devaluation) will be awarded to Costain's if loan finance on terms satisfactory to the Tunnel Company can be arranged. The Export Credits Guarentes Department are prepared to cover a bank loan up to £12m but require joint and several guarantees from the shareholders in the Company. The shareholders object strongly

to the requirement of a joint guarantee,

3.

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5.

B.C.G.D. argue that :-

(a) they are required by law to observe normal commercial

underwriting considerations and practice in their operationoj

(b) in a project of this nature (which in any other place than

Hong Kong would be a government project backed by a Government or Central Bank guarantea) a joint guarantee is a reasonable requirement and consistent with sound commercial practice;

(a) it is not their role to provide (nor do their rates reflect

the provision of) risk capital, particularly as they do not have any influence or control over the operations of the Company.

The Tunnel Company argue that 1-

(a) on the conditions E.0.0.0, seek to impose it is difficult

to see what risk they shoulder or function they perform in return for their commission;

(b)

(0)

the joint guarantee is a very onerous and unusual requiro- ment in commercial practice: as a very considerable contingent liability in the balance sheets of each of the shareholders, it will seriously affect their credit-- worthiness;

special consideration should be given to terns to be given to private interests when undertaking a project normally undertaken by governments.

tais

There is a considerable British interest in obtaining this contract. Costain would be pioneering (outside America) a now technique in tunnel-building (by the use of a steel tube); method could bd increasingly used in the future and the firm would be in a favourable position to exploit any such developments. The steel involved (costing nearly half of the contract price) would be a useful boost to British steel exports.

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