TNAG-0855-FCO40-1065-Construction-of-underground-railway-system-in-Hong-Kong-1979 — Page 149

CODE 18 77

!

COVERING SECRET

矗

Reference

HKK 173/25/PUSS (T)

PS/ Secretary of State (T) RECEIVED

INDEX

No

See

HONG KONG MASS TRANSIT RAILWAY

OFFICER

PA

भी

PS/Sec

Mr Knighton Dep Sec FY Taylor ECGD Los de Tate Mor Wilks

M

Mr Sunderland CRE2

Mr AbramsonCRE1

Mr Browning CRE4 Mr Twyman OPG

bulding

The Hong Kong Government have for some years been completing a mass transit system, the first phase of which is well on the way to completion. Tenders for the second phase of construction and equipping are now being considered. On 5 February the Mass Transit Authority will take a decision on the key contract for the supply of rolling stock. The requirement is 150 cars with an option to supply a further 70. ECGD have been working upon a contract value for the 150 cars of approximately £74m and for the option of approximately £37m. The Mass Transit Authority have negotiated reductions on these figures and the final price has yet to be determined. The British Trade Commissioner for Hong Kong, in his latest advice, puts the value of the first contract at approximately £50m.

In hot international competition, Metrocam, with GEC as principal sub-contractor, secured the contract for the supply of rolling stock for phase 1 and the option of further cars was taken up. Lately we learnt in strict confidence from the Mass Transit Authority that the Japanese, who are the closest competitors of Metrocam for phase 2, had offered to waive interest payments on the loans which would potentially finance both this contract and certain other contracts in which the same Japanese firms are interested up to the time at which deliveries were completed. This has the effect of reducing their bid by the equivalent of some £5m at a moment when straightforward price reductions are no longer permitted under the tender conditions. The Japanese are providing supply of credit and claim that their offer on the financing is entirely at the firm's own risk and is not supported by the Exim Bank in Tokyo. We face a situation which it is extremely difficult to cope with.

Metrocam have turned to HMG and to ECGD asking us to find some way of matching the Japanese financial offer, given the way in whic the Japanese have made it. we cannot expect any response from Exim Bank, Tokyo, if we challenge under normal ECGD procedures we cannot therefore turn to ECGD's normal systems for matching credit offers from competing nations.

Our advice from Metrocam, from the Trade Commissioner in Hong Kong and in the Governor's personal telegram No.150, a copy of which I attach, is that we shall need to match or nearly match the Japanese offer if the contract is to be saved for Metrocam. Understandably, Metrocam have some technical and other consideratio