TNAG-1061-FCO40-1311-The-Kowloon-Canton-Railway-1981 — Page 21

Mr. William Jour Mr. Searle pl. opech

Lla

CHIEF SECRETA

TO THE

TREASURY

HK GD

23

ཉ

A

PS

TRED

11/9 Ridley

and a 15/ou may

Treasury Chambers, Parliament Street, SW1P 3AG

Kenneth Baker Esq MP

Minister of State

Department of Industry Ashdown House

123 Victoria Street London SW1

HKK 173/2

RECEIVED IN REGISTRY NO. 51

1410 SEP 1981

DESK OFFICER

INDEX

PA

No Massa

METRO-CAMMELL LIMITED:

REGISTRY

ZA COLE MODERN

Taken

12. प्र.

Mr Donald

FED

11/4

R+R pl.

Mas14

9 September 1981

Spoken to

Mr Burleigh PEP.

IDU are.

and

beading

will report to Ministers

Pend

KOWLOON-CANTON RAILWAY before

of September

Mas

Thank you for your letter of 14 August in which you proposed that Metro-Cammell be allowed to take out backdated cost escalation cover for the cash contract which it is negotiating with the Kowloon-Canton Railway. I entirely agree with John Biffen's conclusions, set out in his letter of 1 September, that it would not be acceptable to use the CEC scheme, which is intended to operate as a viable insurance facility, to provide a subsidy through retrospective insurance where a claim would be certain to arise.

I understand that as a result of Treasury officials initially rejecting this proposal, informal discussions with the Kowloon- Canton Railway began on the possibility of credit, incorporating interest subsidies, being offered as a means of obtaining their agreement to an increased price. The cost of providing interest subsidies may well exceed the subsidy requested under the Cost Escalation Cover scheme. If the latter subsidy is regarded as the amount necessary to obtain the contract, it does not seem sensible to provide a greater subsidy through an alternative route in order to obtain the contract.

is

I would prefer that this contract be seen in relation to the second contract mentioned in your letter which Metro-Cammell wishes to obtain in Hong Kong from the Mass Transit Railway. There is clearly an inter-relationship between the two contracts since if the subsidy requested for the first contract is granted but not the subsidy for the second, Metro-Cammell appears unlikely to obtain sufficient work to tide itself over until it obtains new orders from London Transport. On the other hand if a

1.