TNAG-0475-FCO40-540-Contributions-of-Hong-Kong-for-costs-on-maintaining-military-1974 — Page 33

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Mr Stuart

Mr Youde

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HONG KONG DEFENCE CONTRIBUTION

1. At the request of the Ministry of Defence and the Department of the Environment (Property Services Agency) we asked the Governor whether he saw political objection to technical discussions on an increased contribution from Hong Kong to defence costs. Mr Stuart's submission of 26 April and his letter to the Governor of 29 April are relevant.

2. In his telegram No. 499 the Governor agreed to these technical discussions. A Ministry of Defence/DOE team accordingly went to Hong Kong. The Governor then sent us his telegram No. 531 to say that the talks had ended in provisional agreement. He set this out as follows:

This sum

(A) The Hong Kong Government will make an additional contri- bution of HK $30 million towards increased costs. represents, in rounded up terms, the estimated increase in building costs above 150% at 1971 prices applied to the unspent

The estimate is based on balance of the capital contribution.

an assumed 11% increase per month compound from November 1973, when the 50% increase over 1971 was reached, until March 1976. (B) If building costs in fact increase by more than 1% per month compound, the Hong Kong Government will increase its contribution accordingly, subject to a maximum of 2% per month compound (which would be $ 38 million).

(C) As an alternative, to avoid a continuing adjustment, a counter proposal by the U.K. team that Hong Kong should make a

CONFIDENTIAL (Covering Secret)

/contribution