TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 155

CONFIDENTIAL,

fraud would be identical to that known in the United Kingdom. Additionally,

if the loss is due to force majeure or failure by one party to observe

obligations then termination of the joint venture can only occur after what appears to be a procedure that might be exceedingly difficult for the non-

Chinese joint venture.

5. ANALYSIS

Means of Finance

Since equity will only account for some 10% of total estimated project value

with the remaining finance being through loans, equity would not appear to

be serving a major financial purpose. The debt: equity ratio would give no security to those providing loans and the project could probably be financed

totally from loans.

Equally from other recent examples of joint ventures in PRC, it would not

appear that equity involvement is a pre-condition for partnership in the

Western sense of the world "equity". The minimum 25% "equity" input required

under joint venture laws need not necessarily be in cash or even in materials;

rather evaluation may be put on transferred technology and expertise and be

counted towards the overseas partners equity contribution.

Symbol of Commitment

An equity stake would be symbolic of a commitment to the successful completion

of the project and operation of the station. As such, it could be a valuable

lever in securing an effective UK lead in the project if UK interests were to

take up the substantial part of the equity of HKNIC.

The commitment of Hong Kong interests is particularly important given that the

viability of this project relies on Hong Kong purchasing a substantial part of

the output of the station especially in the early years. Nevertheless

commitments can be given in ways other than equity involvement. The off take

agreement between CLP and KEC could for example be underwritten by the Hong Kong

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