TNAG-0424-FCO40-470-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 20

Mr Finlayson

CONFIDENTIAL

Reference

8

HKK 21/4

6239

HONG KONG MASS TRANSIT SCHEME

1.

The situation has become even more clouded. As we expected, GEC have approached the Italians who were very ready to consider co-operation. But they said that Italian export credit arrangements were such that they were far more favourable for the mechanical and electrical side than for civil engineering. They therefore proposed that the British consortium should take a minority interest (say 30%) of the civil work in order to attract British export credit for this part of the contract, while GEC would take over 60% of the M and E side.

2. GEC were attracted by this but the proposal has foundered on the renewed refusal of the British civil side (not in this case Costains but its partners, Mowlems, Taylor Woodrow, Tarmac and Cementation) to get involved in a fixed price contract. The proposed Anglo/Italian consortium idea is therefore floundering, though Lazards are investigating the possibility of getting round the Italians' credit finance difficulty.

3. In this situation I understand that GEC have thought again of the Japanese and ECGD have reopened their tentative contact with MITI, who have expressed interest.

4. The factor which may become relevant is that a major reason for the Italians and the Japanese willing- ness to talk about mergers is apparently that they too are getting cold feet about a fixed price contract. It is possible therefore that Hong Kong may find the basis of its negotiations slipping away because of unwilling- ness by the consortia to commit themselves to a fixed price. But meanwhile the British bid is very much in disarray. Mr Glaves-Smith will be briefing Mr Aston and will send us a copy of his telegram. I have said that when we see this and particularly the details of the ECGD approach to the Japanese we will wish to consider the political implications. There is some risk that GEC, in their search for a viable bid, may get stuck with a politically unacceptable partner.

2 October 1973

Copy to:

Mr Youde

Sir D Watson

yüzdenher

PPA C Stuart

Hong Kong & Indian Ocean Department

DD 145177 219242 500M 4:73 GM 3643/2

CONFIDENTIAL