TNAG-0441-FCO40-506-Visits-of-leading-personalities-of-Hong-Kong-to-UK-1974 — Page 67

CONFIDENTIAL

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Helvi

HONG KONG MASS TRANSIT SYSTEM

Background

1.

The Hong Kong Government have been negotiating with a

number of international consortia for the construction of the first

four stages of an underground railway system in Hong Kong, valued

at about £400 million. The main conditions set by the Hong Kong

Government were that the price of the system should not exceed

5,000 million Hong Kong dollars; that the finance, including

export credit, should as far as possible be provided by the

consortia or their sponsoring Governments; and that the Hong Kong

Government should not be required to provide a guarantee.

2.

The leading contenders forthe contract were a Japanese

group, a British consortium led by GEC and Costains, an Italian

group, and an Anglo/French/German consortium. During the summer of

1973 it became clear that the British group, particularly the civil

side, were not prepared to accept a ceiling price. This was partly

because of uncertainties about cost escalation over the long

construction period, and partly because crucial information about the

nature of the sub-soil in Hong Kong is not yet available. During the

autumn, therefore, the British and Italian groups got together,

partly at the instigation of the Governor of Hong Kong, with a view

to spreading the risks and producing a bid based on the best features

of their two separate offers. (The Governor's intervention should not be

revealed)

3.

The Japanese then put in a pre-emptive bid with a ceiling

price just below the Hong Kong maximum, and said that if their offer

was not accepted before early December, it would be withdrawn.

bid met Hong Kong's conditions in all respects except that the

This

CONFIDENTIAL

/Japanese