TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 54

FIRST DRAFT

CONFIDENTIAL

GUANGDONG NUCLEAR POWER STATION PROJECT

PEOPLE'S REPUBLIC OF CHINA

ISSUES

- To decide HMG's negotiating stance in relation to the financial package

to be offered to the Chinese in support of the UK element in the Guangdong nuclear power station project (Annex A to be added), with particular reference to the length of the credit, the inclusion of local costs and capitalisation of interest and their effect on the overall subsidy element.

- To discard the least effective options.

OPTIONS

1.

2.

3.

To decide upon an acceptable overall subsidy percentage and then to

determine its elements (the actual figures to be applied pro rata as they emerge);

To offer a credit covering UK goods only;

To cover UK goods plus local costs;

4. To cover UK goods only plus capitalisation of interest;

5. To cover UK goods plus local plus capitalisation.

CONSIDERATION

The credit is assumed to be in Sterling, using the current consensus rate of 72%. Overriding considerations which affect the various options presented are

as follows:

Negotiated Contract

It is intended to use the negotiated contract approach (Annex B to be added) and it is against this background that the various options should be considered.

Experience in negotiated contracts in the power generation field (Castle Peak, Annex to be added) has demonstrated that their success depends

Hong Kong .