TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 118

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XCS (81)5

(b)

Page

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taxation in China at the rate applicable to the Shenzhen Special Economic Zone, 15% of profits, with special arrangements if foreign investment exceeds $25 million or if advanced technology is involved. The Chinese are insisting that GNPC be taxed at the rates applicable to any joint venture company in China:

(i)

(ii)

(iii)

no tax in the first year;

2.5% of gross revenue and 16.5% of profits in the second and third years; and

5% of gross revenue and 33% of profits thereafter. In 1991 the effect of taxation at the rate applicable to Shenzhen in terms of reducing the cost per unit of

electricity from the nuclear power station (paragraph 15 above) would be about 5¢ a unit.

The effect of (a) and (b) together in terms of unit cost to consumers would change the comparisons between model 1 and model 2 from 1989 to 1992 to:

Year

Model 1

1989

1990

1991

1992

¢/KWh

104

107

113

120

Model 2 4/KWh

105

107

111

115

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As to the payment of a 10% surcharge on any electricity purchased by CLP from GPC in excess of CLP's 40% entitlement (paragraph 17), CLP state that GPC have been pressing for an even higher percentage surcharge. But the notion of any surcharge should be firmly resisted as CLP has agreed to the excess purchases to help GPC (through GNPC) repay loans raised abroad.

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The situation in the earlier years would be worse if the construction period turned out to be longer than the period on which the present calculation s have been based. Because of interest payments on the one hand and loss of revenue on the other, the cost of electricity from the nuclear power station per unit (paragraph 15 above) would be increased by about 10 per cent a year, or between 6 and 7 cents a unit from 1988 to 1995. CLP (and we are assured GPC as well) are fully conscious of the difficulties of adhering to the planned construction schedule even though the usual complexities of constructing a nuclear plant would be aggravated by the problems inherent in accommodating, remunerating and managing a very heterogenous work force. It is suggested that CLP be asked to emphasise the importance of adhering to the planned construction time, to both GNPC and to the suppliers of the equipment.

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