TNAG-0425-FCO40-471-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 197

HOFO@08/19

7.00 FCO

GPS 450

CYPHER/CAT A

FM HONG KONG 198430Z

CONFIDENTIAL

TO IMMEDIATE FCO TELMO 1201 OF 19 OCTOBER.

DAR

20

PLA

HD HHIOD

PERSONAL FOR MR ROYLE FROM GOVERNOR.

1425

ther

YOUR TELEGRAM 1045.

(253

MASS TRANSIT RAILWAY.

-IN M..P.T. Í HAD ALREADY SENT YOU COPIES OF THE LETTERS

ISSUED BY HADDON-CAVE YESTERDAY TO THE JAPANESE CONSORTIUM AND THE

OTHER THREE CONSORTIA. THESE WILL BRING YOU RIGHT UP TO DATE ON THE PRESENT POSITION.

2. AS REGARDS THE TWO POINTS IN YOUR PARA 51

(1) THE JAPANESE PRE-EMPTIVE BID IS IN A MAXIMUM SUM OF YEN 255,680 MILLION WHICH CONVERTS AT THE MERCHANT SELLING RATE ON 1 OCTOBER (THE DATE ON WHICH THE BID WAS ACKNOWLEDGED) TO HONG KONG DOLLARS 4,998.3 MILLION. IT IS, THEREFORE, JUST WITHIN THE LIMIT SET ON THE CEILING PRICE BY THE STEERING GROUP:

(2) THE WAY IN WHICH THE STEERING GROUP HAS RESOLVED THE DILEMMA THEY FACED OVER THE JAPANESE CONSORTIUM'S REQUIREMENT FOR A GUARANTEE,

WHILE NOT SHUTTING THE DOOR ON WHAT IS OTHERWISE AN ATTRACTIVE

BID, IS EXPLAINED IN THE LETTERS IN M.1.P.T. THE JAPANESE

CONSORTIUM'S REQUIREMENT STEMS FROM THEIR EXIM BANKS'S INSISTENCE

THAT A LINE OF CREDIT WOULD ONLY BE MADE AVAILABLE TO THEM IF A

GUARANTEE WAS FORTHCOMING FROM THE HONG KONG GOVERNMENT TO

THE CONSORTIUM BECAUSE THE GOVERNMENT IS THE MAJOR (AND INDEED THE ONLY) EQUITY SHAREHOLDER. THE EXIM BANK'S ATTITUDE IS

INFLUENCED BY THE FACT THAT THE CAPITAL STRUCTURE OF THE MASS

TRANSIT RAILWAY CORPORATION WILL HAVE A HIGH LOAN BEARING, WHETHER

OR NOT EXECUTIVE COUNCIL WOULD ACTUALLY AUTHORISE ACCEPTANCE

REPEAT ACCEPTANCE OF A BID WHICH REQUIRED A GUARANTEE FOR EXPORT

<

CREDIT TYPE FINANCE, I CANNOT SAY. BUT THE STEERING GROUP DID NOT

THINK THAT VALIDATION REPEAT VALIDATION OF THE BID SHOULD BE WITHHELD BECAUSE OF THE GUARANTEE REQUIREMENT (THOUGH

THEY REMAIN CONCERNED AT THE POSSIBLE DIFFICULTY LATER ON OF RAISING

THE FARE STRUCTURE TO MEET DEEBT REPAYMENTS IF THE GOVERNMENT IS

CONTRACTUALLY COMMITTED TO MEETING THESE OBLIGATIONS ANYWAY).

3. I THINK YOUR REFERENCE TO H.M.G. BECOMING QUOTE INVOLVED

IN THE LAST RESORT UNQUOTE MUST BE BASED ON A MISUNDERSTANDING.

NO COUNTER-GUARANTEE IS REQUIRED BY THE CONSORTIUM FROM H.M.G.

THERE IS NO PARALLEL HERE TO THE REQUIREMENT OF THE A.D.B. FOR A GUARANTEE BY H.M.G. TO THE RECENT ADB/HK LOAN. MOREOVER THE TERMS

OF THE GUARANTEE, LIKE THE REST OF THE CONTRACT, REMAIN TO BE NEGOTIATED, BUT WE WILL ENSURE THAT THE WORDING MAKES IT CLEAR THAT IT RELATES TO THE HONG KONG GOVERNMENT ONLY. INCIDENTALLY,

A LIEN ON SPECIFIC ASSETS IS NOT SOUGHT BUT ONLY A GENERAL

UNDERTAKING, THE IMPLEMENTION OF WHICH WOULD ITSELF BE NEGOTIABLE,

4. SINCE THE STEERING GROUP DID NOT CONSIDER THAT THE REQUIREMENT

OF A GUARANTEE SHOULD BE ALLOWED TO INVALIDATE A BID WHICH WAS IN OTHER RESPECTS SO SATISFACTORY, I THINK THAT THE EXPEDIENT OF USING THIS TO GIVE THE COMPETITOR CONSORTIA AN EXTRA FORTNIGHT

WAS INGENIOUS AND I HOPE HELPFUL.

MACLEHOSE

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SENT AT 19/0612Z RD