TNAG-1658-FCO40-2306-Daya-Bay-nuclear-power-station-project-safety-concerns-in-Ho-1987 — Page 2

the joint venture arrangements HKNIC will take 25% of the electricity generated by the plant and sell this to

to CLP at full cost. In addition HKNIC will purchase a further 45% of electricity produced by the plant from GNIC which will also be sold to CLP at full cost. This will be subject to a price limitation provision (equal to that of the equivalent coal-fire generation in Hong Kong) that will apply during the first six years.

In other words, HKNIC will not make any profit out of the resale of such electricity. However, as a partner in the joint venture, it will receive a share of the profits made

made by the company in proportion to its equity holding.

HKNIC and SCA

6.

Because the supply of electricity within Hong Kong is governed by the Scheme of Control, the question of how nuclear electricity from China might be purchased within the framework of the existing arrangements was considered. As HKNIC has no fixed assets (it is essentially an investment vehicle for CLP's involvement in the Joint Venture Company), the Government considered that within the framework of the Scheme of Control, the most practicable approach to safeguard Hong Kong consumers' interests was to control the purchase of nuclear electricity in the same way as CLP purchases from the Hongkong Electric Company are controlled. The Hong Kong Government is privy to the arrangements set out in the Joint Venture Contract. This:

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(a) serves

as

a shareholders' contractual agreement, setting out the arrangements for GNIC and HKNIC to invest in GNPJVC, build the station and subsequently operate it; and

(b) covers the principles governing the sale of

electricity.

Members will also recall that the contractual agreements finally concluded were the outcome of intense and difficult negotiations with the Chinese Authorities. The main improvements negotiated included : concessionary tax rates for the project; the introduction of a flexibility provision concerning the amount of electricity purchased, a ceiling on the price that would

would be

be paid for electricity during the first six years and the possibility of extending the offtake contract, under which HKNIC purchases 25% of the electricity for a further five years.

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In the light of the contractual arrangements, which were approved by the Executive Council, it was not considered necessary to include HKNIC within the SCA. The existence of HKNIC and its capacity to earn profits from its investment in