TNAG-2238-FCO40-3217-Future-of-Hong-Kong-Royal-Navy-presence-1991 — Page 119

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the differences could be fudged.

HKG had originally

proposed a solution whereby they would obtain a higher proportion of the sale value of unused stores bought under

the 1981 DCA (75% instead of the agreed 65%) and that if the

MOD were able to state that this would equate to the

estimated cost of running the vessels until 1997, then they

would accept this. MOD however knew that the stocks would

not raise sufficient funds and were not prepared to give

Hong Kong any such assurance. That idea was therefore dropped.

C 7. MOD in their recent talks in Hong Kong made three

suggestions: one was that Hong Kong should pay half of the

MOD's 35%: this was unacceptable to Hong Kong; the second

was that Hong Kong should be a party to a deception in which

MOD would simply charge Hong Kong more than the actual cost

of running the vessels: Hong Kong emphatically rejected

this; the third was that Hong Kong should forego its share

of the depreciated value of the vessels: Hong Kong rejected this too (they would have had to seek Finance Committees

agreement to such an arrangement).

The Governor's meeting with Sir Michael Quinlan

D 7. In his meeting with Sir Michael Quinlan on 7 December,

the Governor suggested that Hong Kong might be able to build in some cash flow advantage into their reimbursement for the running of the vessels. This would help to defray costs

later on. The Governor has not had a response from the MOD but we understand that the MOD's position is that they will

need some real cash benefit before they could agree. Officials have recommended that Hong Kong should cover with

at least half of the MODS 35% contribution between now and

1997 (the equivalent of about £4 million).

BATAJR/4

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