Treasury Chambers
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HKK 164/1 W. D
1 7 MAY 1978
MO. 51
REGI RY
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Birch Esq
Export Credits Guarantee Department Aldermanbury House
Aldermanoury
London
EC2P 2EL
Your reference
Our reference
AEF 3 17/68/01
Date
15 May 1978
dees
1115
1104,
GEC TURBINE GENERATORS NUMBERS 3 AND 4 AND BALFOUR BEATTY TRANSMISSION
LINE FOR HONG KONG
You wrote to Joan Kelley on 5 May proposing support for GEC and Balfour Beatty in contracts worth up to £280 million on terms substantially
imilar to those agreed for the signed contract for GEC Units 1 and 2. Since you wrote, you will have seen comments from the Bank of England, a letter from Drummond Cameron about the principles at stake in cost escalation cover, and a letter from the Department of Industry about
ossible support by the CEGB for the work now under discussion.
The combined value of the two contracts would be £280 million which, you say, Includes escalation but not so as to preclude the need for cost escalation cover, at any rate for the GEC contract. Details of the nezu for this cover are not yet available but the point of principle is that there is a probable necessity to make the cover effective as long as 13 months after the base date. For the reasons given by Drummond Cameron, and also because I understand the resulting lower eligible value is likely
o offset most of the disadvantage, I accept his proposal in principle.
The terms proposed now, like those for Units 1 and 2, are that ECGL so support 35% of the UK supply, with a further 15% of UK supply towards local costs. Repayments would again be over 8 years from commission.des subject to the small degree of flexibility which you have described and
you will clear with our Consensus partners. The interest would n e Consensus rate of 7%. What is perhaps more important in present matances is that the loan financing would be, as before, in US
We agree entirely that sterling financing should not be smolated at this stage nor regarded as likely at any later stage. sungosh chat the concessions you mention (local cost financing, minimu Cor sensus 1nterest rate, and cost escalation provisions) would have to Peronsidered in such a way as to deter the borrowers from pressing for
eling financing.
ove that the price of extending the offer of basic cover until ch 1970 when the cost escalation scheme is due to expire, unless
nded will be an irrevocable commitment fee of £125,000 payable by
Light and Power and Esso.
No comments yet.
Private notes are available after approval.