TNAG-2413-FCO40-3515-Hong-Kong-Port-and-Airport-Development-Strategy-(PADS)-fina-1992 — Page 97

XCC(92)57

30.

This undertaking clearly creates a contingent liability for the SAR Government, even though it is highly likely that such a liability will be extremely low. Since this is an essential element in the Agreement, the support of the Chinese side for these arrangements will be essential.

31.

The definition of airport completion will be important to lenders when considering the strength of Government assurances in this and other parts of the agreement. The lenders will probably wish to have an economic test applied e.g. the airport to be deemed to have been completed only once it had operated successfully for 12 months or so and generated all expected revenues. The Government has made it clear to the AA that it would wish to limit the test to a physical one (which could include, if necessary, a test that all facilities had been completed to the extent that the airport was capable of commercial operation). The AA understands the Government's position and, when arranging its debt, will endeavour to convince lenders of the adequacy of such a definition.

a)

Directions from Government

32.

The Government will undertake to make good any shortfall in debt service payments on project debt caused by -

the imposition of a profit control scheme on the AA or other limitations on its revenues;

b)

any Government directions given to the AA under powers in the AA Ordinance;

c)

imposition of any tax specifically directed at the AA or the airport; or

d)

any change in project scope necessitated by any new policy directed specifically at the AA.

33. These undertakings are unlikely to cause any practical problem for the Government. The Agreement does not seek to prevent Government from taking any of the actions listed; it simply creates an obligation to make up any shortfall in debt service payment which might be directly attributable to such actions.

Executive Council