TNAG-0772-FCO40-976-Modernisation-and-electrification-of-the-Kowloon-Canton-Rail-1978 — Page 59

PS/SOS(T)

HKK 173/2

RECEIVER

INDEX

مله

PA

BUY NO. 51

978

CC ES/PUSS (T)

See (2)

RESPS Secretary

Action Te Knighton Dep Sec

Mr Gray Dep Sec

Mr Browning CRE4

Mr Cooper CRE2

Mr Twyman OPG

Mr Lazarus D/Transport

Mr Benjamin IIC/DoÏ Mr Dell M/Dol

Mr Fishpool ECGD

Mr Simpson IDU/DoI

Mr Thompson HKD/FCO Miss Kelley M Treasury

HONG KONG KOWLOON RAILWAY DEVELOPMENT

On 2 November the Department learnt from Metro Cam, leaders of a UK consortium bidding to supply train sets for the refurbishing of that section of the Kowloon/Canton railway which runs on Hong Kong territory, that the UK bid of £52m was some £7m higher than that of the nearest other fully compliant bid put in by a Swiss/French/German consortium. Metro Cam attach great importance to this contract both for its own sake and for the influence it might have on the direction of business in China and the prospects of their success in the concurrent competition for the second stage of the Hong Kong Mass Transit Railway. Metro Cam sought Departments' help in reducing the price and persuading the Hong Kong Government, who are the customer, to prefer the UK bid.

Subsequent investigation, to which British Rail's consultancy arm Transmark, who are advising the iHong Kong Government, the Governor of Hong Kong and the firms have contributed (the first two sources' confidence needs to be carefully respected), shows that the Hong Kong tender board have before them four bids, all of which are for a fixed price save that from Hawker Siddeley Canada. The amounts bid are:- Hawker Siddeley Canada £30m; C Itoh, Japan £36m; German/Swiss/French consortium £45m; Metro Cam £52m. Of these, Hawker Siddeley's, not being fixed, is non-compliant and there is some doubt both about the electrical equipment proposed by the Japanese and their ability to hold so low a price. The marker for Metro Cam is the continental European group. So far as we can tell, the substantial difference arises from the provision which the bidders will have made for escalation. Metro Cam are bargaining with 7% per annum over 3 years. The French at least will be protected by the French Government cost escalation scheme. Swiss and German components may have to face an appreciating currency but lower inflation rates. Certainly Metro Cam and GEC, the main partners in the UK group, are among the efficient sector of UK industry.

The tender board did not wish for political reasons to accept the Japanese tender. They have therefore postponed a recommendation to the Hong Kong Government and are expected to re-consider on Wednesday 15 November.

The Hong Kong Government face a dilemma since their provision for the train sets is £32m. Even the cheapest bid, therefore, is substantially above expectation. The Government now believe that they have three options:-