TNAG-0938-FCO40-1157-Visit-of-John-Nott--Secretary-of-State-for-Trade--to-Hong-Ko-1980 — Page 250

Brief No 8/1

SECRETARY FOR TRADE'S VISIT TO HONG KONG

POWER STATION DEVELOPMENTS

BACKGROUND NOTE BY OPG/DEPARTMENT OF TRADE AND MEP/DEPARTMENT OF INDUSTRY

Castle Peak Power Station

1 In 1977 Sir Lawrence Kadoorie, Head of China Light and Power (CLP), the utility which supplies electricity to Kowloon and the New Territories, approached HMG for a negotiated contract for the supply of equipment for a new power station at Castle Peak for the Kowloon Electric Supply Co (KESCO), a joint company formed by Eastern Energy Ltd (part of Exxon, the US 011 Company), and CLP on a 60 : 40 basis. This enabled CLP to complete the project in a much shorter time than would a request for international competitive tenders.

2 As part of an overall UK package involving the provision of certain management and technical services by British Electricity International (BEI), hardware contracts have since been awarded to the UK for the following:-

(i)

(ii)

(iii)

(iv)

the supply of 2 x 350 MW generators, boilers and ancillary equipment secured by GEC, Babcock and Wilcox and Mouchel and Partners in March 1978 valued at £120m.

the design, supply and erection of a 400 KV transmission system for Castle Peak; secured by Balfour Beatty Engineering and involving BICC and Parsons Peebles in March 1979 valued at £100m.

6 gas turbines valued at £30m by GEC and

2 additional 350 MW generators and ancillary equipment secured by GEC in October 1979 valued at £100m.

HMG's co-ordinating role in the negotiations for these contracts has been very important as CLP is a minority partner with Exxon in the project and, without the HMG involvement, Exxon would almost certainly have rejected a negotiated package.

3

The Department of Industry is monitoring progress on all four contracts. Despite the national engineering strike in 1979, there has been no change in the planned dates of the contract work and CLP are satisfied with the rates of progress on the contracts as a whole.

llong Kong Electric Company (IEC)

4

The UK's record with IEC, which supplies electricity to llong Kong Island, is less happy. HEC asked the UK to arrange a package for its new station on Lamma Island, but the UK price, despite being confined as internationally con- petitive by UK consultants, proved to be two and a half times the EC budget figure which was subsequently met by Mitsubishi. The UK negotiators believe that the Japanese bid can scarcely have covered raw material costs and that the price was so low because they wished to maintain their supply position with