TNAG-0770-FCO40-974-Construction-of-underground-railway-system-in-Hong-Kong-1978 — Page 7

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Totally different considerations are involved in the case of the premium payable for the development of the air space above the depot. The premium for these development rights is not expected to exceed $120 million at current values and the Corporation has argued that an equity payment of this premium would be both appropriate and necessary in the circumstances. The points in favour of this view are:

(a)

(b)

(c)

(d)

A precedent for the payment of development rights in equity was set in respect of the development over the Kowloon Bay Depot, where engineering complexities would have rendered it virtually impossible for any developer other than the Corporation to have tackled the job. In the case of the GPO site in Central the position was much simpler. A developer could have developed above the underground passenger concourse adjacent to Pedder Station and, following the normal practice, would have had to pay a premium to the Government to do so. In the event, it was the Corpora- tion that decided to develop the site; and, in such circumstances, the Corporation has been asked to pay the premium in cash as any other developer would have done. At Tsuen Wan the difficulties of developing on a podium over the depot are considered to be similar to those experienced at Kowloon Bay.

For reasons of access, little development would have been possible over the Kwai Chung site. As the Government motivated the move from Kwai Chung to Tsuen Wan and as the Government wishes to see the site at Tsuen Wan developed to its full potential, it can be argued that the Corporation should not be asked to develop their space over the Tsuen Wan site as to do so on a cash premium basis would mean that the project might not be financially viable for the Corporation.

It is the view of the Chairman of the Corporation that the Corporation Board would be reluctant to proceed with above-depot development if there were any financial risk, and if the project did not add sub- stantially to cash flow resources.

Although revenue from property development was not originally envisaged as being used as a means of financing the capital cost of the railway itself, the Corporation does intend to use it as a contingency reserve and to improve its cash flow. In the case

CONFIDENTIAL ##