TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 56

CONFIDENTIAL

Bank of China Guarantee

It is a prime requirement for ECGD that their loans are backed by acceptable

guarantees by organisations which have sufficient assets to back them.

In the case of a State Trading country such as China this effectively means that the Bank of China would be the guarantor for the Guandong Power Company.

The attitude of the Chinese is however that since the project is a joint

venture between the Guangdong Power Company and Hong Kong Nuclear Investment Company they should only provide guarantees in proportion to their equity

involvement (ie b0% - see Equity).

ECGD's attitude is that this is unreasonable as the project is in the People's Republic of China the political risk is entirely Chinese.

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

of the 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 by Hong Kong.

Another might be to accept that the Bank of China guarantees the majority of

the loan with the balance being taken up by the offshore interests in HKNIC (but not HMG). This latter course is fraught with problems as CLP are not only unwilling to offer guarantees but ECGD would probably not accept them and the remaining participants in HKNIC have yet to be determined.

A recent complication is that the French Government (Framatone are one of the potential suppliers for the nuclear island) are said to be thinking that where a Government to Government agreement exists they would not expect the Bank of China to offer 100% guarantees for the French portion of the project. How the French would, if at all, overcome the guarantee shortfall is not known but it

is now clear that on an Anglo-French deal the views of COFACE will need to be

taken carefully into account. Similarly if an Anglo-US deal were to develop (with Westinghouse) the attitude and practice of the Americans to guarantees would need to be determined.