TNAG-2238-FCO40-3217-Future-of-Hong-Kong-Royal-Navy-presence-1991 — Page 74

CONFIDENTIAL

From: Mr M L Howard, Secretariat (Overseas) (Commitments)

MINISTRY OF DEFENCE

Main Building Whitehall London SW1A 2HB

33

HKB 063/1

Telephone 01-218

01-218 90000

(Direct Dialling) (Switchboard)

Ext 6272

A J Paul Esq

Hong Kong Department

Foreign and Commonwealth Office

King Charles Street

London SW1

Your reference

Our reference D/Sec (0)(C)/6/7

Date

6 March 1991

x

к

Dear Alan

HONG KONG PATROL CRAFT

25

1.

In your letter of 19 February you asked for clarification of the costs involved in retaining the Hong Kong Patrol Craft in theatre beyond 1992. Firstly I should mention that Hong Kong Patrol Craft are not covered by the current DCA but by a separate side letter to DCA 81.

2. We have assessed that the additional running costs of retaining until 1997 of all three Patrol Craft as around £40M; of this the MOD share, using DCA 88 attribution, would be about £15M (35%), all of which is unprogrammed. Early discussions were based on an idea that both the HKG and the UKG should meet these additional running costs in line with the current DCA (65:35) but that HKG should waive its right to a credit on disposal of the three craft. The MOD assessment of the value of the credit in 1997 is somewhere between £6M-£8M.

3. The Hong Kong Government rejected the proposal and instead suggested a scheme based on the value of stores backloaded to the UK. The proposal, as finally articulated by HKG, were unacceptable on the grounds that it did not produce the right sort of cash adjustment. In any case the scheme was later withdrawn by HKG on the grounds that it did not produce the right sort of cash adjustment.

4. In an effort to secure an agreement we finally proposed that HKG might instead consider a straight cash contribution of 65% plus at least 50% of the UK unprogrammed share (£7.5M). A number of ways in which the arrangement might be implemented, without breaching the terms of the DCA, were discussed but unfortunately rejected by HKG.

5. As you know our original offer to the Hong Kong Government has now been formally withdrawn but we are confident that given the will to reach a satisfactory conclusion, a deal which does not compromise DCA 88 is possible.

CONFIDENTIAL

Your

Waitin