TNAG-2408-FCO40-3502-Hong-Kong-Port-and-Airport-Development-Strategy-(PADS)-Brit-1992 — Page 207

CONFIDENTIAL

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ON THE AIRPORT RAILWAY. THIS WILL BE CLOSELY FOLLOWED BY A MORE SUBSTANTIVE BRIEFING AFTER EXCO HAS TAKEN A DECISION ON THE RAILWAY. THIS WILL NEED CAREFUL HANDLING, AS THE CHINESE WILL NEED TO BE INFORMED, INTER ALIA, OF THE INCREASE IN THE ESTIMATED COST OF THE AIRPORT RAILWAY FROM DOLLARS 12.5 BILLION TO DOLLARS 22 BILLION CAT MARCH 1991 PRICES). THIS IS NOT SUCH A LARGE INCREASE AS IT APPEARS TO BE, IN THAT THE DOLLARS 12.5 BILLION EXCLUDED SOME DOLLARS 3 BILLION OF WORKS INCLUDED IN OTHER PROJECTS SUCH AS THE LFC, SO THAT THE TOTAL GROSS COST WAS AROUND DOLLARS 15.5 BILLION. NEVERTHELESS, THE DIFFERENCE OF DOLLARS 6.5 BILLION IS VERY SUBSTANTIAL. IT IS LARGELY DUE TO REFINEMENTS IN DESIGN AND INCREASED PROVISION FOR CONSTRUCTION CONTINGENCY, SUPERVISION AND MANAGEMENT.

6. OF COURSE, IT IS NOT SO MUCH THE TOTAL COST OF THE RAILWAY WHICH MATTERS MOST AS THE COST TO GOVERNMENT. HERE THE PICTURE IS REASONABLE, BUT WILL STILL REQUIRE CAREFUL EXPLANATION. THE KEY POINT IS THAT THE INITIAL GOVERNMENT EQUITY INJECTION WILL ONLY BE DOLLARS 3.7 BILLION (IN 1993 PRICES) IN A SINGLE LUMP SUM. THE FIGURE THAT WE PUT TO THE CHINESE LAST YEAR WAS DOLLARS 3.8 BILLION AT 1990 PRICES, WHICH IS EQUIVALENT TO DOLLARS 5 BILLION IN 1993. FURTHERMORE, DOLLARS 3 BILLION WORTH OF WORKS ORIGINALLY ATTRIBUTED TO THE GOVERNMENT WILL BE REIMBURSED BY THE MTRC, RESULTING IN AN EQUIVALENT REDUCTION IN OUR DIRECT SPENDING ON THE AIRPORT CORE PROGRAMME. HOWEVER, THE GOVERNMENT WILL ALSO NEED TO ACCEPT A CONTINGENT LIABILITY OF DOLLARS 12.5 BILLION CALLABLE EQUITY CAT MONEY-OF-THE-DAY PRICES).

7. THE CONSULTATIVE PROCESS ON THE AIRPORT AUTHORITY LEGISLATION WILL ALSO BEGIN AROUND THE END OF JANUARY, WHEN THE CHINESE SIDE WILL BE INFORMED OF THE MAIN ELEMENTS OF THE DRAFTING

INSTRUCTIONS FOR THE AIRPORT AUTHORITY BILL. THEY WILL ALSO BE CONSULTED ON THE FINANCING AND BUSINESS PLAN OF THE AIRPORT AUTHORITY IN THE EARLY PART OF FEBRUARY, AFTER THE PLAN HAS BEEN CONSIDERED BY EXCO.

WILSON

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