CONFIDENTIAL
should rise they cannot be assumed to equate to ultimate loss).
It is Treasury policy to resist taking on commitments in Amber Zone markets greater than £200 million per year with the aim of broadly speaking limiting new commitments in these markets to expected repayments. In Hong Kong's case, such a £200 million limit will be broadly in line with expected repayments. The Treasury recognises that this could mean that some projects that come forward will not receive cover and as a result may not go ahead. But, providing cover in response to demand which Treasury contends is close to what FCO and DTI are proposing for Hong Kong is the policy which lost the taxpayer large amounts of money. The Treasury believes that new commitments of cover to Hong Kong should be limited to expected repayments, giving scope for new business of around £200 million per year.
-
Trafalgar House has already applied for support for its share of an Anglo-Japanese bid for the main bridge (Lantau Fixed Crossing), which would involve new exposure of about £400m. ECGD currently awaits EGC approval to give a positive indication of support. Further sizeable applications for other elements of the airport project are likely to follow, and there are high hopes that UK companies (notably GEC/Alsthom) will win significant business for China Light and Power's new power station development at Black Point. Here again the scale of potential exposure suggests EGC authority will be required before an indication of support can be given. We hope that officials will be able to agree on such cases, if not the matter will need to be resolved by Ministers collectively. The Treasury, as Chairman of EGC, is setting up a meeting on 19 November to discuss the bridge project.
We fully recognise the need for decisions to strike the right balance between the national interest, risk exposure and concentration, but we also recognise that we have a strong political commitment to Hong Kong and that there are excellent business prospects.
On the political front there is a special dimension because of our responsibility as the sovereign power until 30 June 1997. We cannot afford not to be seen to be supporting our own contractors at a time when confidence in Hong Kong has improved following the signing of the airport MOU and the Prime Minister's visit, and when the economic indicators point to a strong rise in GNP. Whatever our technical or financial arguments, this would be widely seen as a complete lack of confidence by the sovereign power in the Joint Declaration and in Hong Kong's future through 1997. Other countries' credit agencies might become more cautious they could also withdraw or limit finance, thereby undermining the viability of the project and confidence generally. Such a move would also cause difficulties with the Chinese. They
CONFIDENTIAL
No comments yet.
Private notes are available after approval.