TNAG-0855-FCO40-1065-Construction-of-underground-railway-system-in-Hong-Kong-1979 — Page 150

going for them as the suppliers of railway stock under phase 1.

This contract is important, not only in its own right, but as the Governor points out in relation to potential business in China. Moreover elsewhere in the world eg in Singapore mass transit systems are going to be needed and Metrocam will be well placed to compete if they are seen to be the successful suppliers in Hong Kong. On the other hand if the Japanese oust out and if they have supplied for phase 1 their chances in China and their reputation worldwide will be significantly damaged. Department of Industry regard the contract as important both for its immediate benefit to employment and its longer term benefit to sectors of industry where the UK should have some worldwide comparative advantage. FCO would agree with the Government's assessment of the political importance of the contract.

"Against this background we have, at official level, put to the Treasury a proposal which would go beyond any facility that ECGD have yet afforded to a UK company. This is that as soon as a contract for the supply of the rail cars has been concluded the whole of the credit which ECGD are underwriting will be drawn down, the borrower paying 72% for it, but being committed to hold and invest the money at going rates of interest in Government securities, paying Metrocam only as work is done. Since sugly under contract will last some 4 years and going, rates for suitable Government stocks are of the order of 121% per annum the borrower earns a profit of some £2.75m which he can then use only to reduce Metrocam's price. Providing the money at 72% eventually costs ECGD money since the banks from whom it would come are entitled to earn an agreed amount relating to market interest rates.

This must be recognised as a device to meet competition from the Japanese which, despite the Governor's telegram, is in any ordinary understanding of the word, foul.. I discussed the proposal with Sir Leo Pliatsky. Whilst the difficulties of going beyond the normal schemes are clear it does seem that the present competition is taking place in quite unusual circumstances and an unusual degree of Government help would be justified. The scheme proposed does not, of course, yield enough completely to close the gap between Metrocam and the Japanese. We have, however, one or two possibilities of helping within existing powers and hope

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