TNAG-0565-FCO40-660-Construction-of-an-underground-railway-system-in-Hong-Kong-1975 — Page 114

EXPORT CREDITS GUARANTEE DEPARTMENT

X NO. 272, ALDERMANBURY HOUSE, ALDERMANBURY, LONDON EC2P 2EL

Telex: 883601

Telephone: 01-606 6699

Ext.....

Miss J Kelley

HM Treasury

Parliament Street

LONDON SW1

Your reference

Our reference

Date

30 September 1975

•EXPORT

CREDI

90

GUARANTE

PANTLE DEPART

HENT

HONG KONG MASS TRANSIT SCHEME

John Elliott spoke to Ian Rich yesterday and mentioned three points of concern to us which have arisen following our awareness of some aspects of the offers medo to the Mass Transit Authority by other credit insurers. The three points on which we were being pressed to agree financing of local costs, to drop the get acale of terms for increasing valucs of export content and to agree the capitalisation of pre-commissioning interest. I understand from John Elliott's report of conversations that Treasury ars likely to remain adamant in refusing these points.

2 We now understand the question of capitalisation of pre-commissioning interest is less important and I do not want to raise this issue at this time but the other two fcatures may if views remain unaltered might put UK contractors at some disadvantage. On the question of local costs, we have confirmation from MITI, the Japanoso insurer, that it is prepared to support finance for local costs within 15% of the imported clements for civil engineering contracts. For these contracts they are propared to accept a repayment period of 85% over & years from completion of each contract; have no evidence that any other credit insurer is prepared to support or finance local costo. I should also record the information we have that the Japanese are prepared to support 10 years terms for contracts for the supply of equipment.

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3 On this evidence we do not think a strong case eriots for the UK to support locals rut at the same time it should be recognised that during the course of negotiations for contracts UK conpetitors may be at sono disadvantage over this particular point we ac little chance of getting the Japanese to pull back.

4

A more significant disadvantage for UK contractors arises however from the features i in the UK package of specifying the scale of repayment terma depondent upon the oggregato value of orders placed in the UK. We have evidence from all the other. credit insurers that only the French had specified a minimum aggregate contract value to qualify for 10 years terms; this value was Fr.150m for Supply Contracts and Fr.2501 for civil contracts, We have now heard however via Kleinwort Benson the UK lending bank that the French have now removed their minimum aggregato contract valuo restriction.

5 It seems to us that the stipulation that_crodit terms should be dependent upon a total of contracto placed will leave UK contractors at a disadvantage when all others Vill be able to got credit insurance support on known terms for individual contracts without such a stipulation.

6

Although the scale of repayments related to aggregate values has some attractions by tempting the Naso Transit Authority to place business in the UK and theroby, gǝtting.

1