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not get very far on the subject of refineries, though BP agreed that the Chinese would think hard about the need for new capa- city given their existing plant, the need to conserve foreign exchange, the problem of existing over-capacity in the region, and the special qualities of Chinese low-sulphur, high-wax oil. The Chinese might, however, judge that there would be advantage in having an export refinery built in Hong Kong where there would probably be little difficulty in raising capital. the tone of Macfarlane's comments, I would guess that BP are looking at this as a serious option. They would not say whether they would wish to do so alone or as part of a consortium.
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6. BP mentioned the problem of leases in the New Territories. We gave this the usual low-key treatment but came away with the impression that BP did not regard it as a major problem. There was some discussion too of the advantages of siting a refinery over the border, with all recreational and accommodation facil- ities for expatriates in Hong Kong.
7. BP emphasised that the success or otherwise of Hong Kong as an oil centre depended on how determined the Hong Kong Government were to advertise the advantages of Hong Kong to the oil industry. Moreover, the longer-term prospects for Hong Kong in this area, i.e. in down-stream activities, would very much depend on whether the territory established itself now as an oil industry service centre. In other words, if Hong Kong wished to become a refiner of oil and to build up a petro-chemical industry, she would have to prove herself as a reliable service centre. The question of competition with Singapore and Japan as a ship and rig repair centre was touched on.
8. Despite the fact that BP have established their current operations in Shanghai rather than in Hong Kong (because of the former's proximity to the Yellow Sea area which BP is surveying), it was clear to us that other things being equal their natural preference would be to see their base developed in the latter. They saw the advantages of Hong Kong as follows:
(a) reasonable proximity to the oil fields;
(b) proven industrial and commercial expertise;
(c) financial facilities;
(d) good international communications;
(e) attractive to expatriates.
All of these advantages apply equally to Hong Kong as a service centre and as a centre for down-stream activities.
9. We talked very generally in terms of the possibility of a UK/ Hong Kong/China energy package covering oil, coal and nuclear. BP saw advantages in this and mentioned in particular their con- siderable interest in involvement in developing Chinese coal. They had apparently already offered a deal whereby they would
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