CONFIDENTIAL
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Background and Argument
3.
In July the Prime Minister decided that three patrol craft should be retained in Hong Kong until 1997. The MOD suggested that during August (ie before the PES round) we should continue to press HKG for a larger contribution to
the cost. Correspondence rests with PS/No 10's letter of
31 July.
4.
Retention of the three vessels will cost the MOD about £3m per annum under their 35% share of the costs, a figure they say they have not budgetted for. Hong Kong have always argued, with our support, that the funds should be met under the normal Defence Costs Agreement (DCA) cost-sharing arrangements. But, during the Summer, we duly pressed the Hong Kong Government again to look at alternative sources of funding, which would not require an approach to Finance Committee, to try to bridge the gap.
5.
We had hoped that the re-provisioning of naval facilities from HMS Tamar might provide some scope for manoeuvre, but this has proved impossible. The only possible solution that the Chief Secretary could come up with was to divert funds from the Joint Scholarship Scheme
operated by the FCO and Hong Kong Government. (This runs to just over £2 million per annum, half being contributed by each side). However, after looking into this, both we and
the Hong Kong Government have concluded that public accounting principles and procedures make it impossible to divert these funds for this purpose. In any case the money could only become available to any large extent some years down the track when existing scholarship recipients had finished their courses, and would not be substantial.
6. We therefore again seem to have reached the end of the road in Hong Kong. The results of the LegCo elections make it even more unrealistic and dangerous to envisage an
TICACP/2
CONFIDENTIAL
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