CODE 18.77
Frama tome and KWU of West Germany.
CONFIDENTIAL
Reference.........
In informal discussions, however,
he Chinese appeared to favour Frama tome. On the financial structure of he operating company, we pressed a number of critical questions on the definition of limited liability in Chinese company law, including responsi- bility for cost/time overruns. We also pressed the need for a 100% guarantee for both ECGD and commercial loans for the project. In reality such guarantees are only likely to be forthcoming from the Bank of China though it was indicated that we would consider guarantees from the Hong Kong and Shanghai Bank or possibly the Hong Kong Administration for the 40% share of the equity which it is provisionally assumed should be held by non-Chinese interests. As we anticipated, many of these issues appeared not to have been addressed by the Chinese and CLP despite their fundamental importance in terms of the viability of the project. The delegation said that they would need time to consider the points raised; in particular they acknowledged that the question of providing adequate guarantees needed to be fully discussed between the Chinese
and CLP.
6 On the terms which ECGD might be prepared to offer to finance the purchase of equipment for a conventional island, the Chinese pressed the UK to put a specific offer on the table. We explained that without answers to the major questions raised on the UK side it was difficult to be specific. Prevailing consensus rates were outlined 85% of the UK element of the contract at an interest rate of 10% repayable over 10/12 years from the commissioning of
the station. We also said the UK would be willing in principle to consider matching offers made by other countries for the conventional island supply and aligning terms with the nuclear island supplier when selected.
7 At the request of the Chinese Schroders also outlined the likely terms on which commercial loans might be secured. Having sounded out a number of banks Schroders were able to detail the extremely fine terms on which they would expect to be able to arrange such loans in current market conditions.
8 In essence the Chinese urged the UK to walk in front of its competitors in terms of putting a specific financing offer on the table for the conven- tional island rather than waiting to match our competitors. In reply, we argued that the Chinese needed to clarify their thinking on the basic financial issues outlined in paragraph 5 before we could move forward. The Chinese have asked that a delegation from the UK including ECGD and Schroders should visit Guangdong shortly to discuss these financing questions further.
9 One further point of interest was that the Chinese asked what conditions including credit facilities, would be applied by HMG if they decided to buy nuclear fuel for the proposed power plant from the UK. Officials said that they thought that the UK would be able to meet Chinese requirements, and that export credit could be made available on a three year basis, as originally envisaged in the feasibility study on the project.
10 Our general assessment is that the visit went well: GEC are now highly regarded by the Chinese in terms of their technical and manufacturing competence; and the discussions on financing went as far as could reasonably be expected in terms of clarifying the issues to be resolved.
NEXT STEPS
11 In line with Ministers' desire to keep up momentum in defining the scope for UK involvement on the project we believe it essential that we should now respond to the Chinese invitation to send a delegation to Guangdong to discuss the financing issues further. The Prime Minister will be visiting China in September, and it may be possible to use her