TNAG-0509-FCO40-574-Construction-of-underground-railway-system-in-Hong-Kong-1974 — Page 7

CONFIDENTIAL

-2-

3. I told Haddon-Cave that I had taken the line with inquirers that the Hong Kong Government was negotiating a contract; that until negotiations were seen to fail, there was no point in getting too excited about possible alternatives. Nevertheless, should things not go as well as he hoped, had the Hong Kong Government got any contingency plans? His reply was that there would be a mumber of alternatives:

4.

i)

ii)

iii)

To relax the Government's present very rigid negotiating position if a contract could be negotiated with minor modifications on price and design, well within the nearest bid submitted by the other two consortia. He quoted, as an example, dispensing with downward moving escalators. He made it quite clear, however, that if the Japanese were going to ask for an extra i to 2,000 million HK$, this would be a completely different ball game, acceptance of which would be a breach of faith with the other consortia.

To re-activate the trigger mechanism and call for fresh tenders (he was clearly not enchanted with the prospects of another nine months of negotiation). Enter into a dialogue with all the consortia with a view to splitting up the project.

iv) Drop it altogether.

Haddon-Cave emphasised that the mere fact that he was prepared to speculate about the possible alternatives open to the Government, did not mean that any serious consideration had been given to them or that I should encourage British firms to believe that the stage was being reached where the matter was likely to be reopened. The fact was that in Hong Kong one lived from day to day and there had been no such consideration. I assured him that I took this point and would say no more than that British industry would be willing to help implement the scheme if the negotiations with the Japanese failed. He confirmed that he already knew of GECs interest, which I had passed on two or three weeks ago through Derek Jones, the Secretary for Economic Services. He said he understood that the other consortium also was still interested.

5. Before seeing Haddon-Cave I had the opportunity to discuss the matter briefly with the Governor. I did not mention Fell's telegram in case Haddon-Cave had not circulated it. I told the Governor, however, that I had the impression from the Japanese Consul- General that things were not going well and that there were doubts that the Japanese would be able to sign a contract. He confirmed that there were problems within the Japanese consortium, but said it would be wrong to give British industry the impression that the lights had changed to amber. If the negotiations failed, the Hong Kong Government would have to have a very long hard look

/ at what

CONFIDENTIAL