TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 37

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CONFIDENTIAL

Support for Local Costs

In addition to finance being made available for 85% of the UK element, the Chinese may expect that further finance equivalent to 15% of the UK element will be made available

to support expenditure on Chinese goods and services.

Their expectations will derive

in part from the knowledge that such support was made available for the Castle Peak B

Station.

However local costs support is not generally (if ever) conceded by any credit insurer in relation to Chinese business and we would therefore wish to avoid offering

this facility on this occasion. (Recommendation 6).

Drawdown

Drawdown by UK contractors has, for the purposes of this submission been calculated in the basis of equal monthly instalments over 8 years. ECGD have pointed out that equal monthly drawdown over the first six years of an 8 year commissioning period might add 4% to the subsidy element throughout. Alternatively a shorter construction period would reduce overall subsidy levels, but it is believed on the basis of the feasibility study that a 7-8 period will apply in practice. No recommendation is possible on this

aspect since it depends on as yet undefined commercial considerations.

Capitalisation (see also Rate of Interest)

The Chinese are expected to want capitalisation to the pre-commissioning stage of

the project and the percentage calculations for options 4 and 5 have assumed capitalisa-

tion on this basis. Capitalisation to delivery would be less costly but is unlikely

to be acceptable particularly if local costs are not supported as we envisage.

(Recommendation 7).

Subsidy Element

The rate of interest, length of credit, support for local costs, drawdown (to a limited extent) and capitalisation of interest questions combine to affect the overall subsidy

element according to the options displayed below.

CONFIDENTIAL