HKK 2/4.
CONFIDENTIAL
Foreign and Commonwealth Office
London S.W.1
PA
197
2
16 August 1973
า
The Hon Philip Haddon-Cave CHG
Financial Secretary
Colonial Secretariat HONG KONG
1.
Dear Philip,
HEF.
REF.
(201
Duncan Watson is away from the Office today and has asked me to write to you to give you a few comments which have occurred to us after our more prolonged study of the XCO paper about the mass transit railway which you were good enough to send to him. As you requested the paper has been seen by very few people indeed but these include one of our economic advisers and some of the comments which follow you will readily recognise as coming from someone other than Duncan or me.
2. We can easily see why, on the basis of the calculations you have made, you think that a HKg 5,000 m ceiling price is essential if viability is to be achieved, but are you quite sure that the calculations are realistic, or at least consistent? For example, you have allowed for escalation in costs at a rate of 8% per annum for capital expenditure and 6% for recurrent expenditure, while you have built in only 4% per annum for revenue. On any reckoning, this would be a prescription for disaster over a period of 28 years, and I am not at all surprised that three out of the four proposals show enormous deficits on this basis. Looked at another way, a 4% escalation for fares means that, in the economic con- ditions you are postulating, you are looking to a dramatic cheapening in real terms of the cost of travelling. were to re-work your figures with a 6% escalation factor for fares, I think you would find that the British proposals, for example, would show a surplus by 1997/98. Perhaps you would like to discuss this aspect further with Lazards when you are in London.
If you
3. Secondly, I think that there are several things I ought to say about the credit proposals put forward by the three non-British consortia.
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