TNAG-1060-FCO40-1310-Mass-Transit-Railway-in-Hong-Kong-1981 — Page 121

MV Hawtin Esq

the Japanese and others, and MTRC could not be considered as being tied in to

supply of E & M equipment. MTRC would try to avoid being wholly in the hands of either UK or Japanese contenders. In the case of the construction work UK contractors probably had a slight edge of experience over the Japanese but Thompson doubted their ability to cope with such a large scale operation within the deadlines envisaged, whereas this would be well within the capability of most Japanese constructors who tended to be at least 2 or 3 times the size of comparable UK companies, and who had already established good working relations with local contractors with whom they are working on the Tsuen Wan extension. There seems to be a fair chance that UK companies will be in the running for some or all of the E & M contracts and a modest proportion of the construction contracts, but only if the tenders are fully compliant and otherwise competitive.

5. Thompson was very disappointed with the British response which he described as reflecting the lacklustre spirit of British business endeavour compared with the foresight and enterprise of the Japanese. The Japanese have, in his view,

a better feel for the prospects for future development in Hong Kong and in the PRC and SE Asia for which Hong Kong acts as a springboard. He felt that the gloom and despondency over the British economy and the distance of the UK from Hong Kong necessarily created a less enterprising approach to the market detri- mental to the UK's longer term interests. Whether or not his confidence in the willingness of the Japanese to fully meet his conditions is well-founded will be judged only when the formal bids are made; it is not impossible that the Japanese might now wish to limit their exposure in Hong Kong dollars, although I think it would be foolhardy for us to proceed on the assumption that Japanese competition will be significantly curtailed for any such reason.

6. There are, however, more firmly based doubts about the ability of the market to cope with the large amounts of Hong Kong dollars that would be required. The £100m or so required for the E & M contracts could certainly be placed with little difficulty but it would not be so easy to accommodate the whole £400m. However the view was forcibly expressed by the banks with whom we held discussions, that provided we were dealing with one of the 4 or 5 major banks (ie the Hongkong Bank, the Chartered Bank, Citibank, BNP, LBI) there would be no risk of the banks concerned failing to put up the funds to which they had committed themselves. Before they entered into a commitment they would have to consider very carefully the prospective calls on their funds including, in the case of the Hongkong and Chartered banks consideration of wider obligations to support the Hong Kong economy, particularly the exporting sector, and the on-going needs of their regular clients. We were assured that the major banks would refuse a Hong Kong dollar commitment unless the necessary funds were earmarked to enable them to fulfil their undertaking. The unavailability of Hong Kong dollars in the disaster situation you envisage in paragraph 4 of your letter is not, therefore, regarded as a risk once the major banks have committed themselves to provide the funds. (ECGD has no take-out obligation for currencies other than US dollars or DMs, so that the non-availability clause mentioned in paragraph 4(ii) of your letter would not be required to meet the risk of funds drying up during the drawdown period. Similarly, as we understand it, Hong Kong dollar funds committed by the major banks would not be subject to short-term rollover, so that the proposition you make in paragraph 4(i) would not arise.)

7. As the result of MTRC's very firm assertion that the Japanese would meet their requirements in full I undertook to re-examine our position on my return to London in consultation with departments. In the light of what we have learned in Hong Kong I recommend that we should accept a commitment to Hong Kong dollar financing for the whole of the Island Line provided

(a)

it is made perfectly clear to both lenders and contractors that we have no take-out obligation and have no intention of assuming one in an emergency situation;

20.

/(b)