10
32.
paragraph
Because of the
32, if
nature of the events set out in any of the callable equity were required, it is most likely to be drawn down before June 1997, and this will therefore be a charge on the present Hong Kong Government. Indeed, if the airport opens on time, the contingent liability represented by callable equity will fall away totally in June 1997. In the event of project delay, cashflow analysis indicates that revenues from the Kai Tak surplus and a passenger terminal charge of as much as $100 (at March 1991 prices) should be sufficient to enable the Authority to meet all its debt service obligations.
33.
Before airport completion, any funds drawn down under this callable equity arrangement will initially be treated as a loan subordinated to all project initial debt. On completion, a reconciliation will be made in which the total amount of funds already drawn down will be offset by
any positive effects on the cashflow of any specified beneficial circumstances which may have occurred (e.g. any reduction in overall project cost or increase in pre-completion revenues) and the net funds remaining after any repayment has been made to Government will only then be converted into equity. This ensures that no more equity is injected into the AA than is necessary to maintain the level of project robustness expected in the 'base case'.
Other Forms of Government Support
34.
In addition to making available paid-up and callable equity, the draft agreement sets out other ways in which Government will support the financing of the airport project. These are set out below.
Kai Tak Surplus
35.
The surplus from the extended operation of Kai Tak including revenue generated by any passenger terminal charge will be credited to the AA as explained in paragraph 22b) above.
Passenger Terminal Charge
36.
The agreement provides that the Government will introduce a PTC at Kai Tak no later than the target date for opening the new airport (June 1997). In order to facilitate this, it will be necessary
to reduce the level of Air Passenger Departure Tax from its current level of $150 to no more than $50 at March 1991 prices. This is because it may be necessary for the AA to set a PTC as high as $100 at the
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