CONFIDENTIAL
Equity Participation
11. The exact form of ownership of the power station is as yet
unresolved but discussions are centering on the possibility of actual
ownership being vested in a company to be established in the Peoples Republic of China and owned 60% by KEC and 40% by a new Hong Kong company, Honk Kong Nuclear Investment Company (HKNIC).
10% of
the total costs might be raised in the form of equity, the remaining 90% from loans; thus HKNIC would have to raise about $160m in equity.
12
There is a need to ensure that at least 51% of HKNIC is held
in "safe" hands; otherwise, it could be possible for other interested parties such as the Germans (KWU) or the French (Framatome) to
gain control and place at risk the UK's lead position. Furthermore,
the PRC has indicated that with a project of this magnitude and with
the implications it raises, they would expect both HMG and the Hong Kong Government (HKG) to indicate their goodwill and commitment by taking up some of the equity. This would probably be a prequisite
of UK project leadership. The need to maintain UK control of HKNIC would require $82m,/ Hong Kong Government $20m, GEC $21m and others such as perhaps BP $21m.
13 There does not seem to be any precedent for HMG accepting direct
-equity participation. However the political and commercial issues at
stake in this instance are substantial. In financial terms it is envisaged that the investment would pay a rate of return of 25% per annum over the 25 years, before full ownership reverts to KEC. (There is though the possibility, however remote, that the investment might be lost in the event of a nuclear accident). Any shareholding
by HMG should be dependent upon an at least matching participation by the Hong Kong Government and on the UK gaining project leader- ship and the conventional island hardware. If the full potential significance of the investment were to be secured then the Government of the PRC should probably inject equity into KEC's 60% shareholding similar in value to that injected by HMG and HKG. The Hong Kong Governor's view is that despite the unusual nature of an equity involvement by the Hong Kong Government he does not rule out that possibility.
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CONFIDENTIAL
in equity to be faised and this might be apportioned as to vig om.
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Private notes are available after approval.