TNAG-0276-FCO40-312-Plans-for-construction-of-underground-railway-system-in-Hong-1970 — Page 27

60932.14

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6. f. 12!

11

METHODS OF FINANCING THE SYSTEM

39.

At the conservative profitability of

which the Consul-

tants have estimated the project would appear to be able to attract international export financing which is available at about that rate. Such financing would normally apply to about 80% of the export content of the project which could amount to between 50% and 60% of the total expenditure. It is however important that the rate of return should be such as will fully service the capital employed. If the rate of retura has been understated as implied in the preceding paragraph and can be brought up to a more commercial level then it can be regarded as fully viable and attrattive to a wider range of financing methods.

40.

financed.

There are a number a ways in which the Subway System could be

The most obvious alternatives are:-

(a)

Government to finance the whole of the capital expenditure

out of Government's current revenues.

(b)

(c)

Government to finance part of the capital expenditure

out of Government's current revcnces while raising the

remainder by outside loans or by floating bonds.

The whole of the capital expenditure to be raised from sources other than Covernment's current revenue for

example by loans and/or bonds.

It is not the purpose of this paper to argue in detail the financial case for the System, It may fairly be educed however that method (a) is not appropriate because of the large amounts of capital required each year and the other demands on Goverment's revenues. So with method (c) it is most improbable that Government could contrive a franchise for the System designed to leave its financing entirely to non-Government funds. It is likely that the system will be able to promise a rate of return which would rake bond issues and loans prac- ticable but Government will clearly be expected to bear a significant

part of the direct capital cost.

41.

The system is already attracting considerable interest in Great Britain, Europe, Japan and North America and there should be no insuperable difficulty in financing the scheme provided that it is shown to be a viable proposition backed by the Hong Kong Government. The backing required from Coment would have to extend to guaranteein the whole system financially and to providing the operating authority.

THE OPERATING AUTHORITY

42.

There are three ways in which a subway of this sort could be operated - by private enterprise, by a Government department, or by a public authority. Since it is extremely unlikely that the syster could

CONFIDENTIAL