TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 34

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CONFIDENTIAL

This question could develop into a serious difficulty, affecting the progress of

project. It is the objective of HMG and China Light and Power to persuade the Chinese to provide a 100% guarantee for the ECGD loan. One way of achieving this might be to offer attractive counter-guarantees covering the plant and its operation and the

purchase of electricity from Hong Kong.

The French, who are interested both as direct competitors and as potential collaborators with the UK may have another approach. They appear to be thinking of a Government-to- Government deal which they may be prepared to regard a sovereign risk business for which Bank of China guarantees would be unnecessary. Little is known of how this would work in

practice and it could be that if the Chinese Government were offered a loan they would put forward the Bank of China as Borrower thus creating an arrangement which would

clearly be acceptable to ECGD.

The American position has not been clarified.

No recommendations are submitted on this subject.

Again, this section is not central to the consideration of options and might therefore

take the form of a background note7.

Rate of Interest

J

The

This question in that it directly affects the subsidy element is crucial. current Consensus rate of 73% for China will only apply to offers made prior to 16

November. Thereafter a 10% rate will come into effect. Assuming that the cost of funds

remains constant (16.5%) in both instances the new Consensus rate will be significantly

less costly in terms of the subsidy element.

It is felt that firm contracts are unlikely to be signed before 30 April 1982. It is

char

also understood that the French would propose charing the Consensus rate in force at the

time contracts were signed. The American position has not been determined but could

be expected to be similar to that of the French.

CONFIDENTIAL