TNAG-0425-FCO40-471-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 198

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FM HONG KONG 1984252

CONFIDENTIAL

TO IMMEDIATE FCO TELNO 1290 OF 19 OCTOBER.

MY TELEGRAM 1175 OF 13 OCTOBER.

MASS TRANSIT RAILWAY.

ps/ou Royle

THE STEERING GROUP HAS NOW DECLARED THE JAPANESE CONSORTIUM BID TO BE VALID AND HAS SO INFORMED THEIR LOCAL AGENTS (JARDINES) IN THE FOLLOWING TERMS

QUOTE

DEAR SIR,

PLEASE REFER TO THE JAPANESE CONSORTIUM'S LETTER OF 27 SEPTEMBER, 1973, TO MY LETTER OF 9 OCTOBER, AND TO THE AGREED RECORDS OF OUR THREE SUBSEQUENT MEETINGS HELD ON 19, 12 AND 16 OCTOBER.

2. THE MASS TRANSIT STEERING GROUP HAS NOW CAREFULLY CONSIDERED AND ASSESSED ALL THE STATEMENTS WHICH HAVE BEEN MADE BY OR ON BEHALF OF THE JAPANESE CONSORTIUM, AS SET OUT OR RECORDED IN THE ABOVE-MENTIONED DOCUMENTS, THE GROUP HAS COME TO THE VIEW THAT, FOR THE PURPOSE OF VALIDATION UNDER THE AGREED PROCEDURE FOR DEALING WITH A PRE-EMPTIVE BID, THE JAPANESE CONSORTIUM'S BID, AS AMENDED, IS SATISFACTORY WITH ONE IMPORTANT EXCEPTION, NAMELY, THE CONSORTIUM'S REQUIREMENT FOR A HONG KONG GOVERNMENT GUARANTEE IN RESPECT OF THE FINANCE WHICH THE CONSORTIUM HAVE OFFERED TO ARRANGE. THIS REQUIREMENT IS, AS YOU ARE AWARE, DIRECTLY IN CONTRAST WITH ONE OF THE HONG KONG GOVERNMENT'S REQUIREMENTS, NAMELY, THAT A HONG KONG GOVERNMENT GUARANTEE MUST-REPEAT -AUCT MOT BE REQUIRED FOR EXPORT

CREDITS/CONSORTIUM FINANCE.

3. THE STEERING GROUP HAS TAKEN CAREFUL NOTE OF YOUR EXPLANATIONS REGARDING THE CONSORTIUM'S REQUIREMENT FOR A HONG KONG GOVERNMENT GUARANTEE, AND UNDERSTANDS THE CONSORTIUM & POSITION, ALTHOUGH THE GROUP IS NOT PERSUADED THAT THE GOVERNMENT'S POSITION ON THE QUESTION OF A GUARANTEE SHOULD BE MODIFIED IN ANY WAY, THE GROUP HAS TAKEN AN OVERALL VIEW OF THE CONSORTIUM'S BID, AND, HAVING REGARD TO ALL OTHER FACTORS, HAS COME TO THE CONCLUSION THAT IT SHOULD NOT WITHHOLD VALIDATION OF THE BID SOLELY ON THE GROUND THAT IT FALLS SHORT OF ONE OF THE GOVERNMENT'S QUOTE MUSTS UNQUOTE IN ITS LIST OF REQUIREMENTS.

4. NEVERTHELESS, THE CONSORTIUM'S REQUIREMENT FOR A HONG KONG GOVERNMENT GUARANTEE CREATES SUBSTANTIAL DIFFICULTIES FOR THE STEERING GROUP, PARTICULARLY WITH REGARD TO THE GROUP'S POSITION VIS-A-VIS THE OTHER THREE INTERESTED CONSORTIA, IN VIEW OF THE EMPHASIS WHICH THE STEERING GROUP HAS ALWAYS LAID ON THE GOVERNMENT'S INSISTENCE THAT IT WOULD NOT BE PREPARED TO GIVE A GUARANTEE FOR EXPORT CREDITS/CONSORTIUM FINANCE, THE OTHER THREE CONSORTIA HAVE ACCEPTED THE GOVERNMENT'S POSITION, AND HAVE BASED THEIR PROPOSALS ON THE ASSUMPTION THAT NO HONG KONG GOVERNMENT GUARANTEE WOULD BE GIVEN. IF THEY WERE NOW INFORMED THAT THE STEERING GROUP HAS RECEIVED A VALID BID, THEY WOULD NATURALLY ASSUME THAT THE BID MEETS ALL THE GOVERNMENT'S REQUIREMENTS (OR, AT LEAST, ALL THE QUOTE MUSTS UNQUOTE), AND WOULD HAVE LEGITIMATE CAUSE FOR COMPLAINT IF THEY EVENTUALLY DISCOVERED THAT THIS WERE NOT THE CASE. MOREOVER, HAVING MADE ITS OWN RULES IN AN EXERCISE OF THIS NATURE, THE STEERING GROUP MUST ABIDE BY THEM, OR GIVE SUFFICIENT NOTICE OF ANY PROPOSED MODIFICATIONS TO ALL CONCERNEED, SO AS TO MAINTAIN ITS GOOD FAITH WITH ALL INTERESTED PARTIES.

5. ACCORDINGLY, THE STEERING GROUP HAS DECIDED TO DECLARE THE JAPANESE CONSORTIUM'S BID TO BE VALID, BUT, AT THE SAME TIME, TO INFORM THE OTHER CONSORTIA THAT THE VALIDATION HAS BEEN BASED ON AN OVERALL ASSESSMENT, AND THAT THE BID WHICH HAS BEEN VALIDATED IS BASED ON THE ASSUMPTION THAT A HONG KONG GOVERNMENT GUARANTEE WOULD BE GIVEN IN RESPECT OF EXPORT CREDITS/CONSORTIUM FINANCE. FURTHERMORE, IN VIEW OF THE IMPLICATIONS WHICH THE QUESTION OF A HONG KONG GOVERNMENT GUARANTEE MAY HAVE ON OTHER FACTORS (PARTICULARLY FINANCIAL FACTORS), THE STEERING GROUP HAS CONCLUDED THAT A REASONABLE AMOUNT OF EXTRA TIME MUST BE GIVEN TO THE OTHER CONSORTIA TO ENABLE THEM TO RE-ASSESS THEIR OWN POSITIONS AND TO DECIDE ON THE FORM AND CONTENT OF THE COUNTER-BIDS, IF ANY, WHICH THEY MIGHT WISH TO PUT FORWARD. THE STEERING GGROUP HAS, THEREFORE, DECIDED TO EXTEND THE NOTIFICATION PERIOD UNDER STEP 3(B) OF THE PROCEDURE FOR DEALING WITH A PREE-EMPTIVE BID FROM 30 TO 45 DAYS.

6. ON RECEIPT OF YOUR FORMAL ACKNOWLEDGEMENT OF THIS LETTER, THE STEERING GROUP WILL INFORM THE OTHER THREE CONSORTIA THAT IT HAS DECLARED A PRE-EMPTIVE BID TO BE VALID, AND THAT THE SUPPLEMENTARY PROCEDURE, AS AMENDED, WILL COME INTO OPERATION. THE FIRST DAY OF THE 45-DAY NOTIFICATION PERIOD WILL BE THE DAY FOLLOWING THE DATE OF RECEIPT OF YOUR ACKNOWLEDGEMENT.

7. FINALLY, I SHOULD LIKE TO REMIND YOU THAT AUTHORITY FOR THE ACCEPTANCE OF ANY PRE-EMPTIVE BID OR COUNTER-BID RESTS, AS YOU ALREADY KNOW, WITH THE GOVERNOR IN COUNCIL.

YOURS FAITHFULLY,

1. MADDON-CAKE) FINANCIAL SECRETARY.