CONFIDENTIAL
CONSIDERATION
Thredit is assumed to be in Sterling.
Factors which affect the various options presented are as follows:
Negotiated Contract
It is intended to use the negotiated contract approach (Annex B to be added) and it is
against this background that the various options should be considered.
Experience in negotiated contracts in the power generation field (Castle Peak, Hong
Kong - Annex C to be added) has demonstrated that their success depends largely on making
our "best" offer, at least in general terms, ab initio. This approach will have been observed by the Chinese (particularly in relation to Hong Kong) and they will therefore expect a similarly attractive deal from us for Guangdong. (Recommendation 1).
Equity
The Chinese have made it clear that they are keen to see some degree of equity participa-
tion by foreign interests in major projects in China which have recourse to foreign
technology and equipment. The Guangdong project is no exception. The reasons for this
are likely to be derived from China's unhappy experiences with projects undertaken with
foreign collaboration in the 1978-79 period, when planning and execution ran seriously
out of control, resulting in acute bottle-necks and disastrous financial losses. They
probably hope that foreign equity participation will help to guarantee that the foreign
partners see to it that such errors are not repeated.
A joint venture entity is proposed between the Guangdong authorities on one hand and a
Hong Kong company (Hong Kong Nuclear Investment Company yet to be floated) on the
other. The equity split between these two organisation will be 60:40 in favour of the
Chinese on a capitalisation representing 10% of project costs of $4000m.
CONFIDENTIAL