TNAG-2239-FCO40-3218-Future-of-Hong-Kong-Royal-Navy-presence-1991 — Page 125

DUU

GOVERNMENT HUUSE

HUNG KUNG

6-14 14:20

CONFIDENTIAL

機密

PHGE ØS

13.

ptions

In discussions with MOD, the HKG has tried to be flexible in seeking to devise a formula to allow retention of the Patrol Craft beyond 1992 within the framework that -

14.

(a)

(b)

any arrangements would have to be on the basis of the 65:35 split of costs continuing to apply, and

have the effect that Hong Kong would not suffer a net disadvantage at the end of the day.

The options put forward by MOD and the HKG to try to resolve the funding difficulties in respect of the operating costs of the patrol craft are as below:

MOD

(a)

(b)

In June 1990 MOD suggested that it would continue to pay its 35% share of operating costs to 1997 if, in exchange, HKG would in 1997 forego its 75% share in the residual value of the three vessels.

This proposal was unacceptable because we could not justify to Finance Committee giving up HKG's interest in the residual value of the three vessels which (de-equipped) had earlier been estimated by the RN to be worth some 7.5m in 1997. Finance Committee has been appraised of the HKG interest in any future disposal of the vessels.

In December 1990 MOD proposed that HKG meet half ($100m) of MOD's 35% share of the operating costs of the Patrol Craft between 1992 and 1997. MOD suggested that these costs could be 'included' in the DCA accounts by artificially inflating actual manpower costs.

HKG was unable to agree to this proposal because it would amount to a deliberate attempt to mislead Finance Committee. The proposal went beyond the agreed 65:35 apportionment, and would entail HKG meeting some 82% of the operating cost of the vessels.