TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 157

CONFIDENTIAL

It does seem reasonably clear that the minimum 25% equity input required from

overseas joint venture partners need not necessarily be in cash, or even in

materials: a valuation may, it seems, be put on transferred technology and

expertise which may be counted towards the overseas partner's equity

contribution.

Apportioning Risk

Equity is risk capital and does not of itself imply any greater acceptance of

liability. Although an equity stake would imply some moral commitment to

liabilities, that liability could arise irrespective of the taking of equity.

Nevertheless the Chinese may view the joint venture as a way of sharing risks. Certainly if 40% of the equity were to be taken by interests outside of the

PRC then they might reasonably expect those interests to provide certain

guarantees on the timely completion of the project with acceptance of

responsibilities for cost overrum. CLP are not prepared to accept those

responsibilities but have not determined the liabilities they would be prepared

to take against the project leadership they would like to assume. Whether it

would be appropriate for other interests to accept liabilities depends on the

objectives of those other interests and the liabilities involved. However if

the real issue is the apportionment of risk and obligations then that could be

considered independent of the issue of equity.

Five general areas of risk might be postulated:

failure to complete on time or within budget and hence failure

to deliver power to programme;

- the failure of CLP to take the power proposed;

the failure of GPC/CLP for operational reasons to generate

power and hence earn revenue;

the failure for political reasons for GPC to supply power;

- liabilities resulting from a nuclear accident.

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