TNAG-0424-FCO40-470-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 107

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CONFIDENTIAL

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(c) In connection with paragraph 9, Mr. Newall said the

British Group were of the opinion that the Hong Kong

Government would not be able to obtain the first four

stages of the IR, as at present defined, for $5,000

million. Mr. Haddon-Cave said that, if this were

true, the project might have to be abandoned, and

this the Government was quite prepared to do.

Mr.

7. Mr. Kindersley then commented on the overall financial

picture, and the text of his comments is at Annex C. Haddon-Cave, referring to paragraph 16 of Mr. Kindersley's

comments, agreed that the MTSG's choice of the various annual escalation factors (viz. 8% for capital costs, 6% for recurrent costs and 4% for fares) might be open to debate, but pointed

out that the MTSG considered these factors to be realistic and

appropriate. In particular, the 4% p.a. escalation factor

assumed for fares had been chosen after very careful considera-

tion. On financial and transport policy grounds, the MTSG had to consider the possibility of consumer resistance to the TR, at least in the early years of operation. It had also been

necessary to have regard to political constraints on the extent

to which public transport fares could be raised. Thus, the

MTSG's view was that it would be wiser to adopt a higher initial

fare structure and escalate it at a moderate rate than to start

from a low base and increase fares more sharply. This was what the MTSG had assumed, and the initial fare structure now used in

the cash-flow tables was already more than 15% higher than that previously used. Mr. Kindersley said London Transport had been able to keep their fares ahead of increases in the cost of living without losing patronage. Mr. Haddon-Cave said the political

background in Hong Kong was different from that in London.

Generally, the Hong Kong population had been accustomed to stable public transport fares, and it was only recently that the stern resistance to fare increases seemed to have been broken through.

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CONFIDENTIAL