TNAG-2968-FCO40-4247-Future-of-Hong-Kong-British-Consulate-General-inclusion-of--1993 — Page 21

CA

Mrs Barnes Jones, HKD

406 113

MILD 406

K&C.

W. J.

INDEX

2 3 NOV 1993

57

HONG KONG: BRITISH CHAMBER OF COMMERCE

55

widn't went in Central..

1. Thank you for your minute dated 16 November seeking advice on the rent we should charge the British Chamber of Commerce in the Consulate General building.

2.

You will see below some alternative options of the rent we should seek. The higher the rent we agree, the easier it is for us to defend but alongside each option I have given the reasons for putting it forward and the likelihood of it being acceptable. All the options are for the rent element only and the usual additional charges must be added (eg service charge; security; proportion of rates; insurance(?) etc).

(i)

Commercial rate: OED calculated this to be £56,150 per annum and if there is any chance that the Chamber could afford this amount we should base our negotiations on it. If the position is that the Chamber intended to rent this amount of space in Hong Kong before hearing of our offer, they must be expecting to pay this amount. On the other hand, I assume the work of the Chamber is not purely commercial but helps the FCO and DTI meet its objectives of promoting exports. In which case we can justify a lower

rent.

(ii)

Depreciation rate: I have consulted Mr Popplestone who is responsible for the Fees and Charges work in RFD and he quoted the case of Heathrow Airport's VIP facilities. They charge the FCO a fee based on both the cost of borrowing the capital and the depreciation of the building. He believes this is in line with the Treasury's Fees and Charges guidance. The depreciation element in this case would be the cost of the building divided by its life (50 years in OED's NPV calculation) and multiplied by the proportion of the building occupied by the Chamber ie (£28 450K / 50 years) x (200 / 16 642) = £6 838 per annum. this you must add:

To

(iii)

Cost of borrowing the capital: OED put forward as an option a minimum of 6% return on the capital investment (ie. £28 450K x 200/16 642 x 6% = £20 520 per annum) which, as Mr Smith advises, is based on the Treasury guidance. That guidance also advises that for central government activities being sold to private markets a rate of 8% would apply (leading to a rent of £27 352 per annum). However, Mr Popplestone thinks that both of these options

OED/hongkg, chamcom

1