TNAG-0423-FCO40-469-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 177

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Dean Frank,

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EXPORT CREDITS GUARANTEE DEPARTMENT

Aldermanbury House

Aldermanbury

London, E.C.2

5 April 1973

103

91

JAN

HONG KONG MASS TRANSIT SYSTEM

I enclose a copy of our record of the meetings in Hong Kong over 19/20 March between the Hong Kong Government and the British consortium.

•

2. The Hong Kong Government's purpose in holding the meetings is set out in paragraph 3 of the record: to ascertain whether a consortium price will fit within the price parameters which they have decided they can afford. This purpose was not achieved this time round but the consortium have agreed to undertake a pricing exercise and to let the Hong Kong Government know their pricing forecasts at further meetings (now scheduled for 7 May). The consortium's task is formidable; there is a considerable amount of information they must obtain and evaluate. Even this is unlikely to be enough for any firm forecasting, and the figures when given will undoubtedly have some significant reservations attached to them. There is also the point that the system design is still evolving (see paragraphs 25-27 of the record). All in all there must be doubt whether the price the consortium produce will be meaningful except possibly in providing a range of probability as to how the price will come out. If however the consortium do produce firm figures they must I think expect to be squeezed hard in contract negotiations to maintain them however much the assumptions on which they are based change.

You will see that the question of capitalisation of interest, the other main issue which the Hong Kong Government had said they wished to raise was turned aside (paragraph 20). I understand however that the Government feel very strongly about it and if a consortium approach is adopted they can be expected to return to the charge. You will note by the way (from paragraphs 26-27) that the time scale has shortened quite significantly; all the earlier projections of payment on which the Bank have been calculating degrees of preference are thus to this extent inaccurate.

Aside from the meetings Aston raised with Coggins the question of communications between Hong Kong and London about this project. Aston expressed concern that any comment or instruction from London

FW Glaves-Smith Esq

Overseas Finance & Projects Group

Department of Trade & Industry 1 Victoria Street

London SW1

/should