TNAG-0426-FCO40-472-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 13

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stage, it might be possible to set a lower ceiling.

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Mr Haddon-Cave said that the MTSG had taken a view as to

the amount of debt which the system could bear, and had arrived at a maximum contract price of HK$5,000 million (or a maximum project cost, including pre-contract expenditure, the cost of supervision, etc of HK 5,800 million). Any excess of the contract price over HK$5,000 million would have to be considered in terms of:

how it could be financed; and

(a)

(b)

whether the system could bear it (given that each unit

of capital expenditure would eventually become 7.7 units

of debt).

The former was probably not a very great problem, but he wondered whether the Anglo-Italian Group had given any thought to how the additional debt could be serviced (apart from charging higher fares). Mr Kindersley said the simplest answer would be for additional equity to be obtained from one source or another, but Mr Haddon-Cave said the possibility of this seemed very limited indeed. Dr Piccagli said that, in relation to the 10% p.a. escalation postulated in the Anglo- Italian Group's counter-bid, the 4% p.a. escalation of fares would appear too low and there should be scope for adopting a higher rate. Mr Haddon-Cave pointed out that, while the 10% cost escalation factor related to a period of only 5-6 years, the 4% p.a. increase in fares was continuous. Mr Kindersley said that, if a rate of escalation of as high as 10% p.a. occurred over the construction period, there should be scope for increasing the initial fare structure.

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He

After further discussion, Mr Haddon-Cave said he considered the Anglo-Italian Group's counter-bid to be sufficiently specific for The the purpose of comparison and contrast with the pre-emptive bid. MTSG would now need to evaluate the various bids carefully and present its findings and recommendations to the Governor in Council. hoped he would be able to hold further discussions, if any were desired for the purpose of clarification, with representatives of the Anglo-Italian Group within the next few days. Dr Piccagli said he would stay in Hong Kong until Wednesday 5th December, and Mr Scott said that, if an urgent meeting were required, Messrs Kindersley, Kline and himself could come to Hong Kong again (from Taiwan) at

short notice.

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