be "communautaire" and could lead to joint ventures elsewhere, such as Korea. The third contender, Westinghouse, is preferred from the technical and safety point of view, but prefers to sell only a part of the nuclear hardware. Officials will consider the choice of nuclear partner best suited to satisfy the apparently conflicting technical, safety and commercial objectives.
POLITICAL BENEFITS
With the New Territories lease due to expire in 1997, the increased economic interdependence between Guangdong and Hong Kong would contribute to Hong Kong's stability and business confidence and help to reassure investors about the territory's future status.
With EMG's support of the CLP study known to the Chinese, to attempt to disengage now would only be adversely interpreted and so weaken the credibility of the UK and Hong Kong Governments, and the position of Sir Lawrence Kadoorie. Apart from the nuclear prospect, Sir Lawrence's good will is critical to secure a negotiated contract for the 4 x 660 MW Castle Peak B Station, decisions on which are expected early next year.
ISSUES TO BE FACED
The main issues to be faced are:
The Credit Fackage
The finance package will have a crucial effect on the project's capability to be self-financing. Under OECD rules, ECGD could agree support for a 90% loan repayable over 12 years, but ab initio would propose an 85% loan over 10 years the terms that EEC members are proposing for power stations, both conventional and nuclear. The actual terms will depend upon those proposed by the nuclear island partner, or upon the cash flow projections on the viability of the project. The security of ECGD loans to CLP will also need to be safeguarded.
Equity Involvement
We have been told by CLP that the Guangdong authorities may seek direct HMG and Hong Kong Government equity involvement probably because it would ensure political and moral commitment.
Liabilities
Most of the risks associated with the Guangdong project can be covered by commercial insurance. HMG may have to accept some financial responsibility in the event of a major nuclear accident: the Guangdong project is essentially a joint venture and the PRC might insist on shared liability as part of the price for preferring equipment and other supplies from the UK. If this price has to be paid we should negotiate an agreement with the PRC whereby:
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