TNAG-0422-FCO40-468-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 15

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This results in a subsidy to U.K. exports [(a) - (b) as a percentage of (c)] of 35.7%, though the subsidy element in the financing (comparable to the grant element in aid) is, as we reported, 32.66% [i.e. (a) (b) as a percentage of (a)]. The effect of capitalising the interest is to increase the present value of the loan, while the amount of U.K. exports remains wichanged. Hence the marked increase in the subsidy to U.K. exports.

3. Proposal in Annex 2

The figures at Annex 2 are based on the same assumptions as in 1. but with interest payments up to the end of stage 4 capitalised and repaid from six months after the end of stage 4:

HK mns.

Present value of loan

a) 2,027.04

Present value of receipts (capital & interest)

(b) 1,240.26

Present value of exports (assuming that the

timing of exports is as in 1.)

(c) 1,722.22

This gives a subsidy to U.K. exports of 45.7%, though the subsidy element in the financing is, as we reported, 38.8%.

The E.C.G.D. figures on which calculations 2 and 3 are based do not appear to include the payment of the commitment fee and other commissions, but this would only reduce the subsidy figure by a few percentage points.

I am copying this letter to Cotterill and Coggins (E.C.G.D.), Miss Eyles (D.T.I.) and Radford (0.D.A.). and Stuart (F.C.o.).

R.Jones, Esq. [H.M.Treasury,

Great George Street, S.W.1.]

[Yours sincerely,]

(Signed) LINDSAY RYAN

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