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albeit limited. HKG now had a better idea of MOD budget problems and an understanding of our position. The costs of running on the PCs might be reduced if they were. from 3 to 2, but savings would only be about £2M. Also there were the practical problems of selling off or running just one craft elsewhere. The MOD were prepared to consider this suggestion but the sum in itself was not enough. HKG now was looking for further potential savings from other areas of the Garrison. MOD felt that this was a separate issue and in any case the budget already assumed that additional as yet unidentified savings would be made. Consideration had been given to reducing the PCs valuation by 1997 to zero, but HKG considered this would be very difficult to pass through LEGCO. They did not rule out the idea of HKG buying out MOD's 25% share and running the PCs themselves using LSP; hopefully continuing to fly the White Ensign. Depending on how they chose to operate the vessels, the HKG might be able to achieve considerable offsetting savings. Most importantly, however, we were running out of time and SofS had been recommended to write to the Foreign Secretary on the matter. HKG had also suggested that HMG had good political reasons for sustaining confidence in Hong Kong, therefore HMG as a whole should pay. Sec (O) (C) commented that while the sharing of costs with other Government Departments would be welcome, he was not optimistic of the prospect of their agreement. commented that if the additional costs of retention of the PCs had to be borne by MOD it would cut the restoration of other priority RN savings measures (eg. 3 single role mine hunters). Hd Sec(0) (C) ended by saying that the HKG had undertaken to provide a response to MOD in a short time scale.
AUS (GF)
17. CBF stated that stalemate had all but been reached. HKG were very keen to resolve the matter but he was not confident that they would come up with a solution. The matter needed to be resolved soon, as funding stopped in March 92 which left 9 months to close down the RN operation. A clear line would be required from the MOD as there would be much criticism from the press. There was also an important Chinese dimension, as the Chinese would perceive a link between the PC withdrawal and denial to them of the naval basin. Moreover, a number of functions carried out by the RN as a whole would have to be transferred to the Army. He could not give precise figures but there was the guarding of TAMAR, administrative jobs,
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