TNAG-2120-FCO40-3026-Hong-Kong-Garrison-future-of-the-Royal-Navy-presence-1990 — Page 44

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INFO IMMEDIATE UKREP JLG HONG KONG

PERSONAL FOR PAUL FROM THE DEPUTY GOVERNOR:

PLEASE PASS TO THE GOVERNOR VISITING

YRTELNO 2283: ROYAL NAVY PRESENCE IN HONG KONG

SUMMARY

1. FUTURE FUNDING OF PATROL CRAFT NOT(NOT) RESOLVED AFTER TWO ROUNDS OF DISCUSSION. MOD REJECTED HKG'S PROPOSAL ON FUNDING, AND HARDENED POSITION BY PROPOSAL THAT HKG EITHER FOREGO ITS SHARE OF THE DEPRECIATED VALUE OF THE VESSELS OR PAY HALF OF MODS 35 PERCENT SHARE OF OPERATING (POUNDS STERLING 7.5 MILLION) BETWEEN 1992 AND 1997. WE WERE UNABLE TO ACCEPT THESE PROPOSALS WHICH WOULD RESULT IN HKG SUFFERING AN OVERALL NET DISADVANTAGE IN CASH TERMS AND, IF TAKEN FORWARD, WOULD REQUIRE APPROVAL OF FINANCE COMMITTEE.

HKG'S POSITION

2. WE RESTATED OUR EARLIER PROPOSAL THAT HKG SHARE OF THE PROCEEDS FROM STORES ETC. PURCHASED UNDER THE 1981, AND POSSIBLY THE 1988, DCA SHOULD BE INCREASED FROM 65 PERCENT TO 75 PERCENT, AND THAT THIS SHOULD OFFSET AGAINST AND ADVANCE TO MOD OF THEIR 35 PERCENT SHARE OF THE PEACOCK'S RECURRENT OPERATING COSTS BETWEEN 1992 AND 1997. WE PROPOSED THIS FORMULA OF AN ADVANCE PAYMENT BECAUSE MOD SAID THAT CASH FLOW WAS THEIR PROBLEM. MOD REJECTED THIS PROPOSAL AS IT WOULD AFFECT THE STRUCTURE OF THE 1988 AGREEMENT AND SO REQUIRE REFERENCE TO MINISTERS.

3. WE SUGGESTED IT MIGHT BE POSSIBLE TO AGREE A REVISED FORMULA CALCULATING THE RESIDUAL VALUE OF THE VESSELS IN 1997 AS THIS MIGHT OFFER SOME MARGINAL FLEXIBILITY AS REGARDS VALUE AND ALLOW MOD TO CONTINUE TO MEET ITS 35 PERCENT SHARE OF OPERATING COSTS BETWEEN 1992 AND 1997. WE WERE UNABLE TO TAKE THIS PROPOSAL FORWARD SINCE, HAVING REGARD TO THE DEPRECIATED VALUE OF THE VESSELS ADVISED BY THE RN IN 1987 PRIOR TO THE DCA NEGOTIATIONS, IT WOULD NOT GENERATE THE LEVEL OF CASH SOUGHT BY MOD.

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