TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 38

GUNKLEJENE LAD

The calculations of subsidy element shown for options 2-5 have been prepared by ECGD. Inch case two sets of figures are shown to cover both old and new Consensus interest

rates.

OPTION 1

to decide a subsidy percentage in advance

For negotiating purposes, if using this approach, the UK team should be aware of the

as would acceptable upper ceiling. The opening percentage would need to be defined

the elements that make up the percentage. These latter issues are for further considera-

tion if this option is chosen.

At the old Consensus interest rate of 73% it is suggested that a subsidy element of up

to 50% should be conceded at the limits of negotiation in order to equate to the effective

subsidy inherent in the Castle Peak projects Annex C.

At the new Consensus interest rate of 10% it is suggested that a subsidy element of up

be conceded

to 44% at the limits of negotiation, would achieve the same effect.

44%/at

Advantage

Disadvantage

In detailed negotiations where the effects of conceding ground piece-

meal on different elements of the package might not be readily

discernable this option gives the negotiators clear upper and lower

limits within which to work and minimises the risk of creeping concession

at the top rate end.

As the elements making up the overall subsidy percentage and their

various inter-relationships would need to be determined in advance the

balance between them might leave little, if any, room to manoeuvre if

the Chinese were to contest particular items in the package.

See Recommendation 8.

CONFIDENTIAL