TNAG-0767-FCO40-971-Supplies-of-electrical-power-for-Hong-Kong-Castle-Peak-power-1978 — Page 35

1.65

Department of Industry

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From the

Minister of State

HKK 164/1

RT HON ALAN WILLIAMS MPRESSIVEN

BG Cartledge Esq Private Secretary to The Prime Minister 10 Downing Street London SW1

Dear Bryan,

SIR LAWRENCE KADOORIE

2o JUN 1978

DESK OFFRIR

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No las

1 Victoria Street London SWIH OET

*Telephone Direct line 01-215 5147

Switchboard 01-215 7877

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See 173

I am replying to your letter of 12 June to Kieran Prendergast about Sir Lawrence's recent visit to China, since this Department is taking the lead in developing a counter-trade scheme with China.

The main purpose of Sir Lawrence's visit to China was to discuss the supply of coal for the power-station being built in Hong Kong for Kesco. Kesco is jointly owned by China Light and Power, of which Sir Lawrence is Chairman, and the Exxon Corporation of the USA. The power station is scheduled to begin operation in 1982. It would be able to burn either coal or oil though the former is expected to be more economic and hence to be the usual fuel.

Sir Lawrence would like the Chinese to supply the bulk of the coal and opened discussions with them over a year ago. At an early stage he suggested that UK mining machinery and other equipment might be made available to assist the Chinese to supply the coal and be paid for out of revenue from the coal. The Chinese officials whom Sir Lawrence met on his visit have confirmed their readiness to supply coal and their keen interest, in principle, in a counter- trade scheme. Discussions have also been initiated on China's purchase of power from the Hong Kong power station.

This could be a commercial opportunity of some magnitude. The scale of Chinese revenues from coal sales may not be quite as large as Sir Lawrence suggests but they are substantial. Moreover, the principle of counter-trade can be extended to other raw materials, and indeed the Chinese have indicated interest in doing so. They have, for example, recently concluded a major agreement with Japan which has some element of counter-trade. The attraction of this technique to them seems to be as a cosmetic, giving to medium or long- term credit an idealogically acceptable complexion. It may also provide a method of obtaining imports of equipment and technology additional to those provided for in the Chinese development plan.

RESTRICTED