THE Bangkok Transit System, in which Hongkong-based developer Hwa Kay Thai has invested, will shoulder higher country risk and financial costs after the Thai Government scrapped the contract terms of another huge transport project. Mr Edward Chow, finance director of Hwa Kay Thai, said that international financiers were very concerned about the issue, which was bound to have adverse effects on the Transit System project. ''Undeniably, a marginal rise in the project's financial cost will result as the overseas lenders will ask for compensation for a higher country risk,'' he said. Both foreign and local investors have expressed fears that the Thai Government's recent decision to renege on the terms of the HK$8 billion motorway project by Kumagai Gumi (Japan) would seriously undermine the country's ability to fund its huge infrastructure programme. Following the government's decision to re-write the terms of the motorway project, local and foreign banks suspended loan payments that could total $6 billion. The principal banks have been holding meetings in Hongkong to consider the project's long-term financial position. The mass transit system, one of the three proposed rail networks in Bangkok, is viewed as the most straightforward and most likely to succeed. Hopewell Holdings' US$3.2 billion elevated rail project remains plagued by the land concession issue and bureaucratic problems. Despite the capricious behaviour of the Thai Government towards foreign investors, Mr Chow stressed that the transit system investment by Hwa Kay Thai remained viable. The fact that Bangkok desperately needed a new transport system to solve its notorious traffic congestion also helped ease overseas investors' worries, he added. Tanayong, Hwa Kay Thai's 32 per cent-owned offshoot in Bangkok, invited five international consortiums in early March to bid for the construction of the US$800 million mass transit system on a turnkey basis. The tender closes on June 30. Mr Chow said negotiations were continuing on the project's financial package and building technicalities. Compared with the joint-venture motorway project involving Kumagai Gumi (Japan) and the Thai Government, he noted that the transit system was a 100 per cent private sector project. This meant that contract terms were agreed to on prudent commercial principles. Under the contract with Bangkok city authorities, the transit system operator will be allowed to increase fares by seven per cent when the inflation rate for that year is between five to nine per cent. A special committee will be set up to decide on a fare increase if the inflation rate goes beyond that range. Only exceptional circumstances, such as the devaluation of the baht or wide fluctuation in the foreign exchange market, would change the fare-increase formula, Mr Chow said. He added that land concession problems, which had complicated negotiations between Hopewell and the Thai authorities, were non-existent because the transit system operator would depend only on fares for revenue. ''Tanayong does not need additional funds from banks for buying up land for property development,'' he said. Under the contract, the winning consortium will hand over a working urban rail network on a turnkey basis in three years. Tanayong will operate it for the remainder of the 30-year concession period before handing it over to the Bangkok Metropolitan Authority. The authority, which initiated the project, owns the roads over which the railway will be built.