TNAG-1058-FCO40-1308-Guangdong-nuclear-power-station-project-1981 — Page 40

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CONFIDENTIAL

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back in time. Nevertheless, one major factor in favour of an immediate deal with the French is that it is preferred by Sir Lawrence Kadoorie, the Chairman of CLP, whose goodwill is : essential for the forthcoming negotiations on the Castle Peak "B" Power Station Project. Castle Peak "B" is potentially the largest ever order for the UK power plant industry and, unless CLP awards the contract for it to GEC, their chances of gaining any part of the Guangdong nuclear project will be remote.

The arguments in favour of a deal with the French are reinforced by GEC's view that the UK can only secure a share in the project if we take an early decision to participate with a foreign nuclear island supplier and jointly mount a determined commercial drive. Also, although the Chinese will make the final decision, the French appear to have a favoured position in Peking.

It is possible to argue that in the longer term there could be merit in a deal involving GEC with Westinghouse/Bechtel/British Nuclear Fuels Limited. Dr Marshall (UK AEA) considers that, in view of Chinese uncertainties, the Government would take a risk by selecting Framatone at this stage, especially as the commercial benefits from a Westinghouse deal are potentially greater. But the considerable and immediate importance of the Castle Peak "B" Station and the need for CLP's fullest cooperation are the overriding considerations. Dr Marshall, together with the nuclear- industry, accept the strength of the Castle Peak "B" argument.

The proposed agreement between GEC and Framatone would not preclude GEC from seeking an agreement with Westinghouse should the Chinese reject an Anglo-French offer. Exploration of the American Administration's attitude to the sale of nuclear hardware to the People's Republic of China is therefore continuing. British Nuclear Fuels Limited will pursue discussions with Westinghouse on fuel supply. It is also desirable that both the Hong Kong Government and CLP should press for dual sourcing of fuel for Guangdong under an Anglo/French partnership so as to secure a role for BNFL. It is perfectly legitimate to argue that the Chinese should not rely upon one source of supply of fuel.

There are no relevant public expenditure implications at this stage.

We and the French agree that equity is not an issue at the moment and the French have assured us that no unusual credit arrangements have been proposed. Officials here are, however, preparing the paper on equity requested in Geoffrey Howe's letter of 31 December 1980 as a contingency should the issue of equity be resurrected.

Against this background officials advise that the Government should agree to GEC entering into an agreement with Framatone for a joint approach to the Guangdong nuclear project, subject to: