TNAG-0426-FCO40-472-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 35

CONFIDENTIAL

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What is galling about all this is that no-one with whom we have yet spolen and this includes several officials with long experience of macro-tenders (and Japanese performance of them), a senior member of Scott Wilson and Kirkpatrick and several journalists none of them believe for one minute that the Japanese could seriously hope to stay within the $5,000 million figure. All take the view that any figure quoted before the escalation due to the oil shortage must either by 11 December have been much too low or else in the first instance was grossly inflated - representing a built in profit-or must have hidden intention cut cut corners in some way or another. Loreover even members of the Japanese Consortium themselves are said already to be hedging their bets about the $5,000 million figure and Jardines are being very cautious about whether it will stick. All find it difficult to believe that EXCO did not suspect this, I think they would find it even more difficult if they knew that the Japanese were also adding to it a requirement for Governmentguarantee but we have the strong impression that efforts are being made to hush this fact up.

The question now of course is what happens next. There is one school of thought that the Japanese will simply not be able to stick to the price when it gets down to detailed negotiations, inceed some of the officials closely concerned have said so to me and John Weedon. Theoretically therefore we could reach the position where the Japanese fail to come up to the mark and the Steering Group invites the other Groups back in to start again (incidentally, as I understand it this would not mean that the Japanese would be disqualified from further bidding

they are on a good each way bet). But there is also a strong school of thought to which I admit I personally subscribe that the Japanese simply cannot afford to fail now; getting the contract would be a tremendous boost to their chances of getting other similar contracts in the area but, conversely, failing to fulfil their initial bid would be disastrous to their chances else where on all sorts of contracts. Furthermore it would be a loss of face for the Hong Kong Government and the Steering Group to have to admit that they were wrong in believing that the Japanese co ld do it. Even if the Japanese put the price up

I suspect that the Steering Group would argue that the other Groups would have

point similarly been obliged to increase the price and therefore there is no in reopening with them. Perhaps in these circumstances they might go right back to square one and go for international competitive tender or, in the extreme, decide to postpone the whole project. But callingback the Anglo Italian and Anglo/Franco/German Group seems to be a fairly renote possibility.

I have however just heard via John Weedon of some tentative approach from

This as I Jardines in London to GEC for GEC to have some part of the contract. understand it has been very much a personal approach by Henry Keswick and indeed

Newbigging. it does not seem to be know even to his lieutenant

It would be in line with Henry Keswick's frequent protestations to me and others that he personally would regard it as most unfortunate if Britain was not in some way involved in this contract and that he has always regarded the "negotiations" so far as ained towards clearing the ground for a coming together of the British and Japanese consortium. But we have only scraps of information about this (we do not even know how far Jardincs here or even Henry Keswick are party to it) and therefore may be reading too much into it. I wonder whether you have heard anything about it and if so would be very grateful to low (on a personal basis if necessay) how much there is in it.

CONFIDENTIAL

So much

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