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The Department's proposals are set out in outline in the attached draft letter to Sir Lawrence Kadoorie, Chairman, China Light and Power, which we hope to present to CLP within the next few days.
We consider that our proposals form an attractive package. However, at present they do not limit China Light and Power's cost escalation risk and this is a feature which Sir Lawrence Kadoorie has made clear he regards as highly important. I am in no doubt that our proposals would not provide the basis of a negotiated contract if we cannot demonstrate that CLP's risk is limited to, say, 8 per cent per year which would be incorporated in our price.
On the other hand, GEC's considered view is that the costs involved in using the cost escalation scheme, including the ECGD premium, would amount to £10m which would make the British price uncompetitive and would be enough to persuade CLP to go to inter- national tender. (This would be on top of an ECGD premium of £8m or so that will have to be paid for buyer credit facilities).
In view of the importance of the CLP contract to the power plant industry, I wish to propose that this Department should provide £5m of the ECGD premium by way of a public sector transfer. expenditure would almost certainly fall to be made in the current financial year and would not require any addition to our existing PES provision. ECGD consider that action along these lines should not give rise to any international difficulties.
This
I hope that you will give me authority to make this adjustment to the price we are putting forward.
I am copying this letter to the Prime Minister, Tony Benn Edmund Dell and David Owen.
Sincerely
Alan
ALAN WILLIAMS
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