TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 146

CONFIDENTIAL

Guangdong Nuclear Power Station Project

Finance Terms

The financial package offered to the Chinese will have to cover not only the financial terms but also the security for the loans which in turn will depend on the sharing of risks between all the parties to the project during the life of the project. The associated paper on equity deals with this. The objective should be to achieve a sharing of risks which would result in the Bank of China providing an unconditional guarantee in respect of all loan finance.

Such a guarantee is however by no means assured. The Chinese have opposed the suggestion and if the Bank of China is to give an uncoditional guarantee for all loans to the joint venture company it will have to be satisfied with the inherent viability of the project and that the finance available to it will be sufficient to meet all its commitments. Essentially the Bank of China will wish to satisfy itself that the power station will be completed and that any costs over those planned due to overruns and/or delays are fully provided for. For a project of this size, complexity and technical difficulty it is unlikely that the Bank of China will give its guarantee unless an acceptable contingency is built into the project cost to cover these costs and proper provision is made to finance them. If this contingency provey subsequently to be sufficient it will look to the promoters for the shortfall. This contingency and any shortfall could be provided for by uncalled capital or standby credits which the Bank of China may expect to be subordinated to the other loans if they are also to be guaranteed.

Another factor of concern to the Bank of China will be whether the project's revenues will be sufficient to cover its operating costs including debt service. It will be especially concerned about the responsibility for debt service in the event that the station at some time failed to produce electricity or China Light failed to pay for the electricity. As the Bank of China is likely to regard these as the responsibility of the promoters it will not be prepared to guarantee debt servicing in these circumstances; debt servicing would have to be either deferred or financed by the promoters.