TNAG-0638-FCO40-786-Supplies-of-electricity-for-Hong-Kong-1977 — Page 67

C.S. 166

CONFIDENTIAL # 2

XCC(77)87

11

Copy No Page 5

33

of 40

In all cases the annual escalation rate of 8%, as originally assumed, has been used. It is confirmed by the assumptions the ECGD have used in their proposed contract with CLP.

(B) Financial Plan

12

The financial plan submitted by CLP is a consolidated plan for CLP, PEFCO and the new generating company and is based on a financial model which was designed to accommodate the expenditure associated with the gas turbines and the four 350 mw generating sets, along with the corresponding transmission and distribution expenses (in other words, to cope with the proposed first stage of the Lantau site development). The financial plan covers financing for six years up to 1983. This is considered a reasonable cut off date for detailed financial projections (particularly tariff rates). It allows for the full capital ex- penditure on the first two 350 mw units and a substantial part of the expenditure on the remaining two units. After this date considerable additional capital expenditure will be required for the planned 500 mw units, making longer projections much more difficult. Nevertheless, the projection to 1983 is long enough both to accommodate the initial financial review required by the Scheme of Control, and to indicate the pattern of likely future tariffs.

13

The detailed plan, which is set out in the Annex and the main features of which are discussed in paragraphs 14, 15 and 16 below, has been prepared on the assumptions that:

(a)

(b)

(c)

capital expenditure would be as outlined in paragraph 9 above;

as to shareholder financing, in the years 1978 to 1981, ESSO would provide 60% and CLP 40% of the $500m share capital needed for the new generating company, CLP providing their portion from retained earnings and ESSO by investing $187m in new funds to supplement their reinvested returns from PEPC. It has been assumed that any further financing of the new generating company by means of share capital would be by CLP only, although ESSO would retain the option to continue contributing up to 60% of the additional capital required;

the Permitted Return has been calculated in accor- dance with the provisions of the proposed Scheme

of Control, i. e. that the permitted return after tax

CONFIDENTIAL

機密