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(From Page 1).
Mass Transit: doubts whether
POST- HERALD
30-12.-13.
Japan can do it for the price
by the EDITOR, SUNDAY BUSINESS
THERE IS no way of making a decision to. award a massive $5,000 million contract for a mass transit Scheme without causing equally massive repercussions in the International business and industrial world.
Hongkong's Financial Secretary, Mr. Philip Haddon-Cave, has done just that with the announcement earlier this month that the Government would begin immediate negotiations with the Japanese consortium to conclude a contract.
Inevitably it has triggered off a good deal of snide criticism, malicious back- .biting and scandalous gossip but Mr Haddon Cave would not be in the job he is in if he did not have a hide as thick as the proverbial elephant's.
It has been officially stated that the award was made entirely on commercial considerations and no one with any knowledge of the considerable negotiations that were involved will doubt this for a moment.
The official statement released on December II said that one of the most important requirements laid down by the Government was that the contract price should be limited to $5,000 million.
This was because it was considered that this was the maximum sum the railway could afford within a given fare structure and bearing in mind the long period over which the debt had to be repaid, resulting in a very heavy interest 'burden.
And while there is no reason to doubt that with so much at stake the Japanese Government will back the consortium to the hilt there are serious doubts in the local and international business community whether the con- sortium can live up to its undertaking to
There are many more grumbles being heard about the way in which the Government carried out the negotiations, the leaks that were made during the course of negotiations (incidentally from. London, not Hongkong) and the way, in which the final pre-emptive bid from the Japanese Consortium was made.":
But even if these. are dismissed as sour grapes or what else, substantive questions about the ability of any consortium to handle the scheme on the present ceiling price çemain.
The belief is that the winning consortium could find itself. at the end of the day out of pocket to the tune of $1,000. million and this is going to do nobody any good, either. the consortium undertaking the job, its backers, the Hongkong Government or the people who use the scheme.".
So far the two other consortia have reacted unemotionally and correctly in public at least. `.
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Sir Douglas' Clague, Chairman of Hutchison International and representative of the Anglo-Italian. consortium has, said: "Anybody who quotes a fixed price for a project of this
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complete the project for $5,000 million.
One complication is the Middle East oil cutbacks and their effect upon Japanese industry, in spite of the 10 per cent increase in production announced last Wednesday.
Another is the doubling of the oil price announced by the Gulf States on Christmas eve and its profound effect upon the cost of raw materials and particularly oil-based raw materials.
There is doubt whether even the decline in the Yen on foreign exchanges so far to the tune of about six per cent can compensate to anything like the full extent of the price increases that are likely to take place in raw materials.
Yet another doubt is whether the Hongkong Government or
the consortium realise the full extent of the problems involved in tunnelling through the decomposed granite and reclaimed land that forms the bulk of the mileage of the first stage of the mass transit scheme.
Preliminary tests by some groups suggest that there may be great difficulties in using big tunnel: excavating equipment and that much of the work may have to be done by smaller equipment requiring far more labour than is at present envisaged.
Even the PWD test tunnels are behind schedule and no accurate and detailed picture is yet available of what is in store.
The fear is that as and when. complications of this nature occur, any group working to an inflexible contract would be tempted to "cut corners" to keep the entire project within bounds and that this in turn might result in a mass transit scheme that falls short of expectations and needs.
see
Some will perhaps
these criticisms as no more thala the views of
magnitude is being very brave indeed in the circumstances ruling these days.
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"I note the paragraph in the official Government statement says that if the negotiations with the Japanese fall through, consideration will be given to negotiating with one or both of the other consortia."
Mr Walter Sulke, head of Hongkong Metro Constructors representing the Anglo-French-German consortium, said: "We are very disappointed. We thought we filled all the requirements and made the best offer possible in the circumstances and technically we think are far better than any other consortia.
we
"Our offer is still good until March 1. "We have been told that if the negotiations with the Japanese fall through, the Hongkong Government may come back to us and we will certainly be very happy if they do.”
Mr Sulke admitted the price put in by his consortium was "much higher" than the figure offered by the Japanese but said that this could possibly be because - the Metro Constructors' bid was made. in the middle of the oil crisis whereas the Japanese made theirs before it.
He said that his consortium had to
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embittered competitors who have been ́· unable to match the guarantee demanded by the Hongkong Government.
But many more than the rival'two consortia bidding for the mass transit scheme share these doubts and wonder whether the winning group will be able to live up to its., offer, once the Hongkong Government has signed a letter of intent.
One prediction is that having done. this the Government might find itself compelled to renegotiate the force majeur clause in the contract with the winning consortium because by that time, all hope of being able to restart negotiations with the other consortia will have vanished.
One consortium, for example, has a life-time of only two more months. *
It is being asked whether even at this“ late stage the Government, should keep its options open for a longer period to.. re-examine the consequences of the sharply increased oil prices on the cost of the mass transit schemes..
Both the other consortia are. understood to have made firm offers.
Both are known to question whether the Government has come up with`a' realistic fare structure which is virtually- the key to the viability of the project.
The Government, it is felt, has been blinded by the total cost. figure of $5,000 million.
There is a feeling that with current inflationary trends the Mass Transit Authority could well have afforded to have set a much higher fare level and this would in turn have given the Government greater flexibility. În negotiating the best possible deal
As one businessman said: "If you want quality you have to pay for it."
take into account the possibility of very much higher prices arising over the next" 24 months because of the increase in price of raw materials, oil-based raw materials particularly, and world-wide shortages of building materials such as cement, together with a very large compounded inflation rate.
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The last point made by Mr Sulke is particularly relevant in view of the Gulf States' recent decision to double the price of oil.
A correspondent from this newspaper asked the Government on Thursday whether in view of this decision the Government would consider revising the ceiling figure of $5,000 million to a higher level to take account of the higher prices of raw materials.
The Government's answer was "No."
And furthermore the Government said it continued to regard ·$5,000, million as the limit in spite of the changed circumstances "because it was considered that (this figure) was the maximum sum the radway could afford within a given fare structure and bearing in mind the long period over which the debt had to be repaid, resulting in a heavy interest-burden.”
(Cont'd on P.8)
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