TNAG-0564-FCO40-659-Construction-of-an-underground-railway-system-in-Hong-Kong-1975 — Page 13

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CONFIDENTIAL

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機密

XCC(75)55

It is conceivable that, despite efforts to be as realistic as possible, the forecasts might err the other way and that the Corporation's revenue might exceed the present estimates. If this situation were to arise, however, it would enable the Corporation to pay off its debts faster than anticipated and/or to provide an im- proved return on the Government's equity and/or to move on more quickly to the extension of the Railway and so further to improve the public transport services of Hong Kong.

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(d)

Contingencies

As a result of rapid world wide inflation in recent years it is no longer possible to obtain realistic fixed price tenders for such long contract periods as are associated with the MIS. Accordingly, although provision has been made for such fixed prices in the tender documents, it has also been considered necessary to include price variations clauses, thereby making it possible to obtain the requisite number of tenderers to provide competitive tender prices for the various parts of the project. However, even though allowances have been made for normal contingencies and inflation, price variation clauses inevitably have the effect of making the final total construction cost less definite. Although international inflation affects revenue as well as costs, there is a need for an additional element to allow for additional contingencies and to make more certain the viability of the System.

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Accordingly, as envisaged in memorandum XCS(75)1, it is proposed that the future Corporation be granted the right to engage in property development over certain stations and other sites. Honourable Members will recall that, at their meeting on 29th July, approval was given to the grant of the sites at Chater/Pedder, Admiralty and Argyle Stations for comprehensive development; and, at their meeting on 2nd September, they will be asked to consider a scheme of development above the Kowloon Bay Depot. For present purposes, it is assumed that Honourable Members will advise that the scheme proposed should be proceeded with.

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Revenue from property development has been regarded as providing an additional element for contingencies and it has, therefore, not been included in the figures for gross revenue in column (5) of Table 2 of Annex D. Another aspect, however, is that property owned would be shown as an asset in the balance sheet of the Corporation and this would make it easier to finance any later extensions to the Railway.

C.S. 166

CONFIDENTIAL

機密