TNAG-0950-FCO40-1169-Effect-of-nuclear-exports-to-China-on-Hong-Kong-Guangdong-nu-1980 — Page 25

GR 475

CONFIDENTIAL

CONFIDENTIAL

FM HONG KONG 191028Z NOV 80

TO IMMEDIATE F C O

HKK 166|1

TELEGRAM NUMBER 1523 OF 19 NOVEMBER.....

18 NOV 1980

INFO PRIORITY PEKING

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us

YOUR TELNO 1028: GUANGDONG NUCLEAR PROJECT.

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OUR BASIC POSITION IS THAT WE DO NOT NORMALLY TAKE EQUITY IN PUBLIC UTILITIES THAT ARE IN PRIVATE HANDS. ON THE RARE OCCASIONS

WE HAVE DEPARTED FROM THIS POSITION, WE HAVE BEEN CAREFUL TO ENSURE THE ARGUMENTS FOR DOING SO WERE SUCH THAT WE WOULD NOT BE CREATING AN AWKWARD PRECEDENT.

2. NO SUCH ARGUMENTS HAVE BEEN PUT TO US IN RESPECT OF THE NUCLEAR

PROJECT. THE CHINESE AUTHORITIES HAVE NOT BEEN PRESSING FOR HKG PARTICIPATION. NOR, AT THIS STAGE, CAN WE SEE ANY SIGNIFICANT POLITICAL ADVANTAGE IN TAKING OUT AN EQUITY POSITION. WE UNDERSTAND

THAT ONE OF THE PROPOSALS IN THE FEASIBILITY STUDY MAY BE THAT ALL EQUITY SHOULD BE PAID BACK BY THE YEAR 2015. IT COULD BE ARGUED THAT A HONG KONG GOVERNMENT INVESTMENT WITH THIS TIME SCALE WOULD BE

GOOD FOR CONFIDENCE. BUT, AGAINST THIS, THE PUBLIC WOULD KNOW THAT THE HONG KONG GOVERNMENT'S EQUITY SHARE COULD ALWAYS BE PAID. BACK EARLIER. FURTHERMORE, FOR THE HONG KONG GOVERNMENT AS SUCH TO INVEST IN A PROJECT WITH A PAYBACK PERIOD BEYOND 1997 MIGHT CREATE POLITICAL DIFFICULTIES FOR THE CHINESE. ARGUMENTS ON SUCH A POINT WOULD BE DAMAGING. THE SIGNIFICANCE OF A MAJOR PROJECT BEING PAID FOR BY LONG-TERM EARNINGS FROM HONG KONG IS BETTER MADE MORE

INDIRECTLY.

3. IF DR. MARSHALL'S IDEA (SUMMARISED IN MY TELNO 1506) THAT AEA AND CLP SHOULD PROVIDE THE BRITISH SIDE OF THE EQUITY IS ACCEPTED,

THEN THERE WOULD SEEM TO BE NO NEED FOR HKG TO PARTICIPATE IN

IF ORDER TO ASSIST IN GETTING THE PROJECT OFF THE GROUND. HOWEVER, THE PROJECT WAS OF MANIFEST ADVANTAGE TO HONG KONG AND WOULD NOT BE ABLE TO GO FORWARD WITHOUT HKG PARTICIPATION, WE WOULD BE WILLING TO RECONSIDER OUR POSITION.

4. THERE IS ONE OTHER POINT THAT WOULD BE WORTH MAKING AT THE MEETING. WE SUSPECT THAT, WHEN WE GET THE FEASIBILITY STUDY AND CERTAIN EXTRA DATA WE HAVE ASKED CLP TO PRODUCE, WE SHALL FIND THAT THE CASE IN ECONOMIC TERMS FOR BUYING ELECTRICITY FROM THE NUCLEAR PLANT IS MARGINAL. THE REASON WILL PROBABLY BE THE HIGH COST OF THE LOANS FOR THE PROJECT AND THE SUBSTANTIAL PROFIC MARGINS ON WHICH WE BELIEVE KEC ARE INSISTING. IN OTHER WORDS THE CASE FOR THE NUCLEAR PLANT SOLEY IN TERMS OF SUPPLY OF ELECTRICITY TO HONG KONG MAY TURN OUT TO BE WEAK. IF THIS IS SO, THEN THE CASE FOR

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CONFIDENTIAL

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