TNAG-0565-FCO40-660-Construction-of-an-underground-railway-system-in-Hong-Kong-1975 — Page 57

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CONFIDENTIAL

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XCC(75)55

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The Provisional Authority has assumed that the premia charged for sites for development will be based on full market value, payable in cash over a 10 year period, except in the case of Kowloon Bay Depot, where much of the development value can be said to be directly related to the presence of the Railway; and in the case of Admiralty also (although the development value here is less dependent on the presence of the Railway). It is the Provisional Authority's view that, in these two latter cases, the Government should consider granting the sites in exchange for a form of equity in the Corporation but, again, at full market value. Peak borrowings for property development would be some $700-900 million in 1979. Since this peak would arise some two years earlier than the peak of Railway borrowings, the maximum outstandings would be only some $300- 600 million higher, say, $6,000 million in 1981 as opposed to the $5,590 million mentioned in paragraph 26 above. The essential point is that there would be a substantial cash inflow from these property developments with effect from 1979, rising to something of the order of $150 million to $250 million by 1982.

Timing

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Although the Provisional Authority has now obtained tenders for representative civil engineering works, as well as offers of finance to cover the cost of the construction of the MIS, a very considerable effort has been necessary to persuade contractors (particularly in Europe) and financiers that, given the viability of the MIS, the Hong Kong Government does intend to proceed with the Railway. Equally, however, now that potential contractors and financiers have made their offers, they cannot be kept waiting unduly or their offers will lapse. Were this to happen, given the history of the project, it would be virtually impossible to rekindle interest yet again and, certainly, any offers that might then be forthcoming would be less satisfactory than those now available.

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If, after considering this memorandum, Honourable Members advise that contracts should now be let, it will be necessary to introduce a motion into the Legislative Council to authorise the Government to guarantee the necessary loans (as required under section 12 of the Mass Transit Railway Corporation Ordinance). For the reasons explained in general terms in the preceding paragraph, this would need to be done on 1st or 2nd October next and the Mass Transit Railway Corporation Ordinance will need to be brought into operation beforehand, by order of the Governor. The Board of the Corporation will also need to have been appointed by then, as it will need to familiarise itself with the preparatory work already under- taken by the Provisional Authority, prior to actually placing the first contracts and confirming the proposed financing arrangements.

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