CONFIDENTIAL
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2.
MOD need to find £3 m per annum as their share of the patrol-craft costs, but they have repeatedly told us and HKG that they are entirely flexible about when between now and 1997 Hong Kong might make an extra contribution to their five-year costs of £15m. We do not understand how the MOD accountants can take this line, but MOD insist it is their position. Both the logic of this position and general commonsense should have led the MOD to include £3m for the patrol craft in their 1992 PES bid so that any Hong Kong contribution would come as a windfall (and the more so
because there was never any likelihood of Hong Kong being
able to cover all MOD's costs). We understand that they have not made any such bid. They may think this is clever tactics; I am not so sure. Mr Wall's (No 10) letters to Mr Webb (MOD) were pretty clear. But I suppose their approach may fit into some wider MOD/Treasury negotiation of which we
are unaware.
3. On timing of our letter, we had regular contact at official level with the MOD throughout August and September, explaining Hong Kong's difficulties. They were therefore under no illusion that new money might suddenly be found.
They knew that the Governor had confirmed that an approach
to the Finance Committee for additional funds for this
purpose would fail and would rebound badly, so that the only prospect was some "creative accounting" solution, which would have to be explored face to face: we did this when the Chief Secretary came to London in early October and again
with the Governor in mid-October. We then submitted.
Meanwhile MOD Ministers have had opportunities to discuss
matters directly with the Governor (the Defence Secretary's visit to Hong Kong in September and the Governor's calls at
MOD in mid-October); they did not do so.
CHAAFK/2
CONFIDENTIAL
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