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FM BTC HONG KONG 220805Z JULY 81
TO ROUTINE F C O
TELEGRAM NUMBER BTC 91 OF 22 JULY
INFO ROUTINE PEKING D O I (FOR HAVELOCK)
MY TELNO BTC 84: GUANGDONG NUCLEAR PROJECT
ZHANG NAI LING, STONES' ASSISTANT ON THE NUCLEAR PROJECT, BRIEFED BROWN AND MYSELF ON HIS MEETING LAST WEEKEND WITH CHEN GANG, WHO BROUGHT HIM UP TO DATE FOR THE BENEFIT OF STONES ON RECENT MEETINGS IN PEKING, STONES WAS PRESENT.
2. CHEN HAD SAID THAT THE REVIEW BOARD SET UP TO CONSIDER THE PROJECT HAD ACCEPTED THE FEASIBILITY STUDY RECOMMENDATIONS ON CAPACITY. THEY HAD ALSO AGREED THAT THE SITE SHOULD BE ON THE WEST SIDE OF BIAS BAY, BUT SLIGHTLY NORTH OF THE SITE RECOMMENDED IN THE STUDY.
3. THE BOARD HAD ACCEPTED THE BROAD LINES OF THE EQUIPMENT SUB COMMITTEE'S RECOMMENDATIONS, INCLUDING THE POSITION THAT ALL THINGS BEING EQUAL PREFERENCE SHOULD BE GIVEN TO UK SUPPLIERS. HOWEVER THEY REMAINED QUOTE APPREHENSIVE UNQUOTE ABOUT GEC'S LACK OF EXPERIENCE WITH 3000 RPM TURBINES OPERATING IN THE PWR MODE. THEY NEEDED MORE INFORMATION ON THE EXTENT TO WHICH GEC COULD GUARANTEE PERFORMANCE. THEY WOULD BE LOOKING FOR AN INDEMNITY AGAINST LOSS OF OUTPUT AS WELL AS COST OF REPLACEMENT OF COMPONENTS. THEY WOULD ALSO BE ASKING CLP TO REPORT ON THE PERFORMANCE OF GEC TURBINES ELSEWHERE.
4. TWO OBSTACLES TO CENTRAL GOVERNMENT APPROVAL (WHICH OTHERWISE
MIGHT BE GIVEN AS EARLY AS NEXT MONTH) RELATED TO THE LOAN GUARANTEE AND TO THE PROPOSED SALE OF ELECTRICITY TO HONG KONG. THE BANK OF CHINA WOULD NOT BE ABLE TO GUARANTEE 100 PER CENT OF
THE LOAN AS PROPOSED IN A LETTER ATTACHED TO THE FEASIBILITY STUDY. FROM THE CHINESE POINT OF VIEW THIS WOULD ENTAIL (WITH A 9 : 1 LOAN/EQUITY GEARING AND A 60: 40 EQUITY SPLIT) ACCEPTANCE OF 96 PER CENT OF THE RISK. CHEN GANG HOPED THAT WE COULD SHOW FLEXIBILITY ON THIS POINT. ON DISPOSAL OF OUTPUT, THE CHINESE NEEDED TO HAVE CONFIRMATION THAT THE HONG KONG GOVERNMENT WOULD APPROVE THE SALE OF ELECTRICITY FROM THE PLANT TO HONG KONG. WE UNDERSTAND THAT EXCO AGREED TO THIS IN
(36 PRINCIPLE AT YESTERDAYS MEETING (SEE HONG KONG TELNO 678).
5. THE BOARD HAD RAISED A NUMBER OF MINOR MATTERS FOR BOTH SIDES
TO LOOK INTO IN DUE COURSE. IN PARTICULAR THEY TOOK THE VIEW THAT CERTAIN ASSUMPTIONS ON TAX LIABILITY WERE INCORRECT, THAT ASSUMPTIONS ON INTEREST RATES, CONSTRUCTION PERIOD, AND DECOMMISSIONING COSTS WERE OPTIMISTIC AND THAT THE RISK ANALYSIS
IN THE STUDY WAS INADEQUATE.
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