THE Provisional Airport Authority's (PAA) finance director, Jamie Dundas, is hopeful the authority will be in a position to start arranging its borrowings in the first quarter of next year. 'It is very good news that we have an agreement with China. However, before we can go out with concrete plans to raise the debt, there are some important follow-up steps to be taken,' he said. The financing milestone took the form of an 'agreed minute' - a document signed by the Chinese and British representatives to the Joint Liaison Group on November 4 - which established a total $60.3 billion equity contribution to be made by the Hong Kong Government into the two corporations, the Airport Authority, and the Mass Transit Railway Corporation (MTRC). 'It also established, as an agreement, that the debt to be incurred by the Airport Authority and the MTRC - with respect to the airport and the airport railway - should not exceed $23 billion at the time of the project completion,' Mr Dundas said. The Hong Kong Government then made a proposal as to how that equity should be split between the two statutory bodies and announced shortly afterwards that the Airport Authority's share of the equity would be $36.6 billion and the Airport Authority's borrowing limit would be $11.6 billion. It is the $11.6 billion that Mr Dundas will be charged with raising, once the follow-up steps have been completed. 'That's the maximum we are allowed to borrow for the first phase of the project,' Mr Dundas said. Before he can tap the local and international credit markets for the $11.6 billion, the PAA needs to drop the word 'Provisional' from its name and become a fully-fledged statutory corporation, just like the MTRC. The PAA was created by ordinance in 1990 and will be transformed by the passage of the Airport Authority Bill through the Legislative Council. However, before the Government introduces the bill to Legco, it awaits a final review at the expert level of the Airport Committee, where discussions are underway. 'This will set out in very clear terms our duties as the Permanent Airport Authority and our powers to operate and manage it,' Mr Dundas said. 'The most important thing from my perspective is that it provides a clear foundation for us to get on with the job. 'It is a step that needs to occur for us to do our financing,' he said. The other step, which was also envisaged in the agreed minute, is that the two sides in the Airport Committee need to reach agreement on the terms of the Financial Support Agreement (FSA). The FSA will then be signed between the Government and the Permanent Airport Authority. 'The FSA is the contractual agreement which provides for the mechanics of paying up the equity,' Mr Dundas said. 'It also commits us to building the airport with due care and attention and it covers the necessary limited support undertakings that the Government will provide to assist us in raising finance, principally relating to other parts of the Airport Core Programme which are not our responsibility. 'The agreement has been contemplated all along, but its terms need to be satisfactory to both sides of the Sino-British Airport Committee, so discussions on that are going ahead now. 'I have every reason to believe that they will be followed up as positively as they can be in the spirit of the agreed minute. 'When they are concluded, and the legislation is passed, we will have reached a state where we are basically credit-worthy, and be able to start approaching markets for the external finance that we need. 'I would like to feel that the credit structure would be complete by the first quarter of 1995.' The PAA has been financed to date by advances approved by the Finance Committee of the Legislative Council from the Capital Investment Fund of the Hong Kong Government. The total amount so far is $31 billion. The PAA's commitments to date are about $14 billion but are expected to increase dramatically at the end of this year and the beginning of next year, with the award of the terminal structure contract, the building services contract for the terminal, and the runway and apron contracts. Mr Dundas said expenditures came later than the commitments but, to be committed to the award of contracts, the money had to be available. 'You do not commit to your expenditures unless you have assured funding,' he said. 'We draw down funds from the Government as we need them.' Mr Dundas said the agreement had had a positive impact. 'The level of equity that the Government is going to inject into the Airport Authority is going to cover more than 70 per cent of our total capital needs up to the airport's opening,' he said. 'That is a very substantial direct Government investment. It means our credit structure will be exceptionally strong. 'The other factor is that, although it has taken some time to reach agreement, in the meantime we have been able to maintain the momentum of the project. 'A lot of the risks that were in the future, at the time of earlier financing proposals, are now behind us. 'We have a greater degree of confidence in our estimates and in the outcome of the construction of the project and we are a long way down the line.' 'All this adds up to a very strong position when we do go forward to financial markets in 1995. No firm decisions would be made about the methods the PAA would use to raise the $11.6 billion of debt, until credit structure was in place, ' Mr Dundas said. However, the markets were well acquainted with the airport project's expected financing, he said. 'We are a Hong Kong dollar-based business. Our revenues will be in Hong Kong dollars. 'Therefore, it would make sense for our financing to be as far as possible in Hong Kong dollars,' he said.