TNAG-0425-FCO40-471-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 149

Foreign and Commonwealth Office London SW1

file

2TA

Telephone 01-

DN Royce Esq

Overseas Finance & Planning Division

DEPARTMENT OF TRADE & INDUSTRY

1 Victoria Street

269

Your reference

Our reference

↑ HKK 21/4

Date

9 November 1973

兄

12.7

HONG KONG MASS TRANSIT SYSTEM

1.

We have been discussing with your new department the draft bid by the Anglo/Italian consortium which Lazards sent to Farry on 2 November. Kindersley of Lazards also rang me up on the

same subject.

2.

I said both to him and to Farry that I fear the Hong Kong Government may well be unwilling to "validate" the bid in its present form. The group are not prepared to quote a price at this stage, and also insist on an escalation clause for local costs. Both points would be contrary to the fundamental Hong Kong condition of a fixed price with a HK$ 5000 million ceiling, and would require a much more far reaching relaxation of Hong Kong's terms than the Japanese demand for a guarantee.

3. It is true that by denominating their bid in Yen the Japanese will have a hedge against the inflation of local costs in Hong Kong. It is also true that the same hedge is not open to us, since sterling is not very likely to appreciate against the Hong Kong dollar. We can therefore argue that our escalation clause has the same effect as this element of the Japanese bid. We can also make the valid point that by asking for escalation provisions only for the Hong Kong element of the costs, we are asking for something that is within the Hong Kong Government's control. We can also argue that inflation of Hong Kong costs can and will be met by increased fare revenue. But my own assessment, which I think Kindersley with his experience of negotiating with Haddon-Cave shares, is that these arguments are not very likely to impress the Hong Kong steering group.

4.

I put it to Kindersley that the tactical prospects might be improved if the consortium offered Hong Kong the choice either of a low price with some escalation element, or a somewhat higher fixed price. He said he thought it possible that the consortium might agree to this and promised to investigate.

/also

He

CONFIDENTIAL

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