TNAG-0322-FCO40-358-Construction-of-underground-railway-system-in-Hong-Kong-1971 — Page 127

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18.4 Three possible sources of capital funds for financing the proposed system are considered here. These are, firstly, bodies such as the World Bank and the Asian Development Bank; secondly, the Hong Kong Government; and thirdly, commercial sources. In view of Hong Kong's special political status and economic standing, financing from the World Bank and the Asian Development Bank is extremely unlikely. Raising the entire capital requirement commer- cially would be precluded by the low rate of return generated by the investment so, effectively, the system must be financed either entirely by Government or by a combination of commercial and Government sources, the commercial investors being protected by

special financial conditions. Consideration of financing along the above lines indicates three possible methods of financing:

(a) Government finances the total capital requirement from general

funds and, though under this arrangement the rate of return would be very low, it would nonetheless probably be in excess of direct return from expenditure on roads and other non- revenue capital expenditure.

(b) Government assumes financial responsibility for the capital

cost of civil engineering works while the funds required for the mechanical and electrical plant and equipment would be raised on the commercial market, probably in the country supplying the plant and equipment. The annual net revenues derived by the system would under this method of financing be used to amortimize that portion of capital raised on the commercial market with any residue being paid to the Government.

(c)

The Initial System would be financed by the previous method. The whole cost of construction and equipment of subsequent stages would be financed by loan from Government revenue on which the interest paid would be the surplus net revenue after servicing the Initial Systen loan.