TNAG-0424-FCO40-470-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 135

CONFIDENTIAL

201.

RECAVED IN REGISTRYN .51

3 SEP 1973

NKK 21/4

WIX 3 L B

HONG KONG GOVERNMENT OFFICE

6

GRA ET

N

STREET

LAST

REF.

197

NOT

REF.

K.M. Wilford, Esq., C.M.G., c/- Foreign and Commonwealth

Office,

London, S. W. 1.

Sean Michael

Lar

LONDON

August 30th, 1973.

нкуб

seur to ile Glover for th donly 24/15

+ Med

Pl copy To M. G-S. (DTI)

KOM.G-S.

стру

What about others

2

iw3%.

Many thanks for your letter of 16th August, which

I hope I may read as implying that, generally speaking, you found the XCo memorandum worthy of "prolonged study"!

2.

As regards the several points you make, I have the following comments:

Paragraph 2

We have given careful consideration to the rates of escalation. On the basis of information obtained from the consortia in our discussions with them, and of the recent trend of cost increases in capital goods, we do not consider an 8% p.a. escala- tion factor over the construction period (from 1974 to 1979) to be excessive. We also consider it realistic to assume that the cost of consumable goods (including wages) will increase by at least 6 p.a. compound over the next 25 years (1974 to 1997) after updating the Consultants' mid-1972 figures.

Turning to the 4% p.a. increase in fares, I think there are four points to be made:

(a) in the cash flow calculations attached to the XCo memorandum, we have used a new fare structure (see paragraph 10(a) of the memorandum). Revenue from this new fare structure (based on mid-1972 prices) is about 15% higher than revenue from the fare structure previously assumed;

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