TNAG-0637-FCO40-785-Supplies-of-electricity-for-Hong-Kong-1977 — Page 83

CONFIDENTIAL

HONG KONG POWER STATION PROJECT.

BACKGROUND NOTE

1

The Prime Minister met Sir Lawrence Kadoorie and China Light and Power's deputy general manager, Mr Stones, on 31 March. The purpose of Sir Lawrence's visit was to persuade the UK Government to put forward a complete package for CLP's proposed investment in a new power station. The power station would be part of a larger programme of development which would give additional opportunities for UK companies for instance, a desalination plant, harbour facilities and pump storage equipment. Sir Lawrence spoke of the possibility of linking the supply of coal for the power station from China with the export of UK coal mining machinery. Sir Lawrence said he was looking for a sufficiently "novel" and competitively priced package to dissuade PEPCO (40% China Light and Power/60% Exxon) from putting the contract out to international tender, in which case the Japanese were likely to be successful.

2 A set of preliminary proposals was drawn up in June, based on a turnkey package with one company (Balfour Beatty) taking the leading role. This was put forward, with the Prime Minister's approval, to Sir Lawrence. Department of Industry and Lazards representatives visited Hong Kong for discussions on the basis of these proposals. It became clear that Sir Lawrence had been hoping for a contract signed between CIP/PEPCO and the British Government. Having accepted that this was not possible, he emphasised that he would expect HMG to co-ordinate the package - he was not interested in any private sector organisation taking on the development on a turnkey basis. In addition, CLP/PEPCO's ideas had developed on a number of other aspects; the introduction of the new power station was being advanced to 1982, leaving the other elements of the project - desalination plant etc - as longer term opportunities; and Exxon had definitely decided to invest in the power station themselves - which made CLP more sensitive about the need for a competitive price.

3 In the light of these discussions a package is now being drawn up with the following principal elements;

i

the Department of Industry will nominate specific companies for the major items of plant. GEC will supply the turoines and Babcock and Wilcox the boilers for the power station. (These companies have been working closely with CLP for many months.) Further companies will be brought in to supply other items of