CONFIDENTIAL
Mr A J Macdonald I C 2
w millen Tam 16.
P/A
2
Referance.
cc Mr Lippitt
Me Baker
Mr Clark
Miss Mueller
Mr Havelock
Mr Roberts
MEPT
IC
MEPT
CRE
Mr Mingay Mr Stewart Mr Morphet
Mr Bryant
Mr Battersby
Mr Fordhan
G FCO Energy
OPG
IP
Treasury
•*. 01
Mr Lane
Treasury
Nr Hewes
IC1
Mr Field
IC2
Mr Bullock
RECIN
-2 JUN 1977
80
ROJECT
HONG KONG POWER STATION PROJECT
1
Акк
I refer to your minute of 26 May addressed to Mr Lippiit, attaching a note presented by Lazards.
2 As you know, no application of any kind has yet been made to ECGD by GEC or any other company concerned with this project. Accordingly we have only the vaguest ideas of the values and time-scales involved. Accordingly we are not yet in a position to make the usual submission to the Export Guarantees Committee for approval under Section 2 of the Export Guarantecs Act. So far, ECGD representatives have only been able to indicate what our experience suggests the Treasury (as chairman of EGC) will agree.
3 Mr Paxman at the meeting of 22 April indicated that although the normal maximum credit terms for Hong Kong were 5 years for 80 per cent of the UK value, he expected that approval could be obtained for 8 years for 85 percent of UK content. In saying this he had in mind the CFRS review and the Loy Yang (Australia) case. Bearing in mind Sir Sidney Gordon's suggestion that given a normal pay-back period of 8 years, CLP would like a flexible period of 6-9 years depending on demand, lir Lippitt agreed we should initially consider a firm period of 8 years credit, possibly considering 10 years at a later stage. Mr Paxman added that he did not rule out the possibility of a further 15 percent of UK content to be used for local costs, but it was thought that this should not initially be offered (The minutes are a little imprecise, attributing to me statements which in fact were made in a somewhat different form by Mr Paxman). Formal Treasury approval would be necessary on all these points. They may also have a balance of payment objection to the proposal that the direct 15% payments should be met by the issue of shares.
4
Our current rules are that any export contract exceeding £20 millions woul¿ need to be financed in foreign currency, which in practice means only US dollars or Dutschemarks, no other currency having an adequate forward market.
5 Paragraph 7 of Lazards' draft telex appears to imply that ECGD would be willing to accept a risk under which repayment would be dependent on an adequate cash flow from the power station. We are not of course in the field of equity investment, and would not accept a feasibility study as adequate underwriting security. We are prepared to study feasibility in relation to other forms of security but will be unable to support proposals which are unsound in underwriting terms.
6 Having I hope made the ECGD position reasonably clear, I would not wish to detract from the positive and helpful spirit of your approach to this project. We are very willing to be flexible and to give all possible assistance to win this contract provided it is negotiated on a sound basis. In particular at this stage we should be careful not to suggest anything which we may not be able to perform.
/7