TNAG-1061-FCO40-1311-The-Kowloon-Canton-Railway-1981 — Page 43

FROM THE

MINISTER OF STATE

FOR INDUSTRY AND

INFORMATION TECHNOLOGY

Kenneth Baker

COMMERCIAL IN CONFIDENCE

DEPARTMENT OF INDUSTRY

ASHDOWN HOUSE

123 VICTORIA STREET

LONDON SW1E 6RB

TELEPHONE DIRECT LINE

01-212 6401

SWITCHBOARD 01-212 7676

нкая

The Rt Hon Leon Brittan QC MP

Chief Secretary

HM Treasury

Treasury Buildings

Parliament Street London

SW1

DKK 173T2

·SAC. PS

FRED

(11)

1981

No

14 August 1981 Mayai paplo:

See

Dear Chief Sevetary,

METRO-CAMMELL LTD: KOWLOON-CANTON RAILWAY

Metro-Cammell are currently working through a large contract to supply rolling stock for the Kowloon-Canton Railway, a contract which they were helped to obtain by support under the Cost Escala- tion Cover Scheme. The KCR authorities are sufficiently pleased with the first cars that have been supplied to want to extend the contract to include an additional 16 three-car sets.

6.

Had KCR originally indicated that they might be interested in such an extension Metro-Cammell would certainly have pressed for such an option to be written into the contract and for it also to be covered by the Cost Escalation Cover Scheme. In fact, KCR only raised this possibility a few weeks ago. Metro-Cammell have asked ECGD for the same support for the extension to the contract, although they recognise that this might involve paying premium at the higher current rate of 2%. It is a cash contract, and therefore does not involve the interest make up costs that would normally be associated with an order of this scale.

Without CEC support Metro-Cammell could not undertake the contract

extension without incurring significant losses. If they are obliged to turn down the opportunity of a negotiated contract, KCR will defer any additional purchases but will eventually go to international tender. ECGD calculate the cost of support at £1.7 million. Metro-Cammell would expect to negotiate a price of around £17.5 million.

I well understand the difficulties in making an exception to the normal arrangements under this Scheme. Nevertheless there are strong arguments for doing so. Metro-Cammell is the UK's only manufacturer of mass transit rolling stock and has good long term prospects both at home and abroad. In the 1990s London Transport will once more be ordering - Metro-Cammell estimate their annual requirement to be some £75 million at 1981 prices. Moreover there are a large number of cities around the world, particularly in the developing