TNAG-1059-FCO40-1309-Guangdong-nuclear-power-station-project-1981 — Page 57

CONFIDENTIAL

Length of Credit

The Castle Peak credits were over 12 years and ECGD have conceded the necessity to give similar treatment for Guangdong. However the Chinese are likely to expect 15 years and this period was suggested in the feasibility study (see Recommendation 1).

Draw Down

Drawdown by UK contractors has, for the purposes of this submission, been calculated on the basis of equal monthly instalments over 8 years.

ECGD have pointed out that a 6 year drawdown over an 8 year construction period would add 5% to the subidy cost (5 years - 7%). 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.

Capitalisation

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

stage and the percentage calculations for options 4 and 5 have assumed

capitalisation on this basis. Capitalisation to delivery is less costly but unlikely to be acceptable (See Recommendation 2).

OPTION 1 decide a subsidy percentage in advance

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

aware of the acceptable upper ceiling. The opening percentage would also

need to be defined as would the elements that make up these percentages.

These latter issues are for further consideration if this option is chosen.

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Advantage - In detailed negotiations where the effects of conceding

Disadvantage

ground piecemeal 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 concessions at the top end.

- As the elements making up the overall subsidy percentage

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.