CONFIDENTIAL
UK Position
4. Our aim to obtain conventional island contract for GEC. Strength
of our position rests on involvement of CLP, potential HongKong
purchase of power from project and HMG's responsibility for Hong
Kong. But we should not over-stress our influence with Hong Kong
where there is sensitivity about being used for British commercial
benefit. Chinese proposed that Hong Kong should take up 25% of equity of project and, more important, purchase 70% of station's output, thus making foreign exchange available to repay the loans. China has said it might proceed alone if satisfactory terms cannot
be agreed with Hong Kong, but we believe Hong Kong's participation
to be essential.
GEC
5.
GEC have given technical presentations to Chinese, who, though
confident of GEC's capabilities, are worried that GEC have not previously produced high speed turbo-generator of size required for project. The one they build will therefore be a prototype, which Chinese think will expose them to greater risk. Chinese objection
may be negotiating tactic to try to improve terms of financial
package.
Hong Kong Government (HKG)
6.
HKG began to examine project in detail only after Chinese
formally announced decision to proceed with project in December 1982. Following signature of UK-PRC memorandum in March, HKG
appointed Lazards to report on economic viability of project and likely price of electricity to Hong Kong. First part of report has been circulated to members of EXCO. It recommends that HKG adopt
cautious approach to project, exercising monitoring and control
function and avoiding making any investment. Unclear how long it
will take HKG to reach final view on participating in project
following receipt of rest of Lazards' report, expected late
September. However, indications are that HKG will be unable to give
final recommendation to EXCO before December 1983. HKG attribute
delay partly to failure of two electricity utilities, CLP and Hong Kong Electric Company (HEC) to hold serious talks about creation of
CONFIDENTIAL