TNAG-2238-FCO40-3217-Future-of-Hong-Kong-Royal-Navy-presence-1991 — Page 46

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Costs included and DCA cost sharing arrangements

3. The current arrangements for the procurement, running costs and disposal of the patrol craft are: Hong Kong contributed 75% of the capital costs of purchasing the vessels; running costs are shared in accordance with the

Defence Costs Agreement (DCA) current at the time (ie 65% paid by Hong Kong; 35% by the MOD); and when the vessels are

withdrawn or sold, 75% of the market value will be credited

to the Hong Kong Government. The cost of retaining three

patrol craft until 1997 is estimated to be about £43 million

(at current prices) over five years, MOD would thus pay £15

million. (The total cost of Hong Kong's defence under the Defence Costs Agreement, is £160 million per year.)

4.

The Governor strongly believes that this basic cost sharing arrangement 65% to the Hong Kong Government and 35% to the MOD - must remain in place:

(a) to vary the arrangements would require Finance Committee's approval and the issue would be highly

controversial; and

(b) the arrangements established for the three patrol crafts could set a precedent for any other variations to the garrison withdrawal plan.

Talks so far

5.

Attitudes on both sides have hardened since the

negotiations began in early 1990. Various options have been considered (eg front loading the Hong Kong Government's

payments to the MOD to ease the latter's cash-flow

problems). But none has been mutually acceptable: either they provided insufficient financial advantage to the MOD; or they necessitated, in the view of the Hong Kong

Government, a fresh approach to the Finance Committee.

MOPADZ/3

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