TNAG-2413-FCO40-3515-Hong-Kong-Port-and-Airport-Development-Strategy-(PADS)-fina-1992 — Page 79

CONFIDENTIAL

3.

The Chinese may well see problems in a number of areas. Our immediate comments (including those of Economic Advisers) are as follows:

(a) (Paras 21-23) Equity. The most cost effective way of

funding the project is for the HKG to arrange for equity to be called when it is needed rather than paid up-front. But this will give the Chinese more scope to argue that the burden is being shifted on to the SARG.

It should be of some reassurance to the Chinese that

adverse circumstances requiring equity to be called are more likely to arise before 1997 than afterwards. they may well still be suspicious.

But

(b) Kai Tak surplus. (Para 25). This provision should

provide considerable comfort to possible lenders. But

the Chinese may view it as Hong Kong depriving the

future SARG of a source of revenue that would otherwise

accrue to them (were the new Airport not to be

completed on time)

(c) Passenger Terminal Change. (Para 26). There is

currently a departure tax, ie such revenue would always go to the Government. The proposal will reduce SARG

revenues.

(a)

(Para

Completion and debt-servicing undertakings.

28-31.) The final sentence of paragraph 29 indicates

that HKG/SARG will need to take on an open-ended

commitment to fund the Airport Authority should the new

airport not be completed and the revenue from Kai Tak surplus and passenger terminal charge not be sufficient to service the AA's debt. The paper gives little indication as to what sort of sums may be involved

although they are likely to be "extremely low" (para

MVSAEO/2

CONFIDENTIAL