CONFIDENTIAL
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Interest Rates
It was agreed that there could be no downward negotiation of the current consensus rate 72% for China eg through a credit mixte package. Consensus
rates are indeed under review but Treasury advised that any alteration would
not occur until end-November. ECGD again suggested that any offer of 72%
has to be time-related (6 months) and DoI felt that these two factors could
well become useful negotiating points.
3 Capitalisation of Pre-Commissioning Interest
ECGD noted that for a project of this scale (involving a 6 year draw down
period) capitalisation would be extremely expensive indeed the rate of
drug down could have a considerable effect. It was recommended that GEC be
asked to produce a cash flow forecast and ECGD undertook to obtain
available data from GEC.
In presenting this question to Ministers it was sugguested that the following
options be put forward:
capitalisation to commissioning
capitalisation to delivery
an upward adjustment interest rates as a means of reducing
the public expenditure cost.
The second two options do presuppose that we will negotiate and not offer
our best terms ab initio but in presenting the issues to Ministers it was
thought advisable to show the options under consideration in such a major
potental commitment. In particular it was thought advisable to seek Ministeral approval for the mixthat might be contemplated with op for
negotiating up to that limit.
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"Locals"
ECGD were categoric that they would not be able to cover both "locals" and
capitalisation of interest. "Locals" probably cannot be accurately defined
until the partnership position is known. Further discussion of this issue
might not therefore be fruitful at the moment although we could perhaps
try to obtain more information on the subject from Kadoorie and Stones.
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