TNAG-2981-FCO40-1473-Guangdong-nuclear-power-station-project-1982 — Page 11

CONFIDENTIAL

5. THE POSSIBILITY THAT THE HONG KONG GOVERNMENT MIGHT TAKE AN EQUITY POSITION IN THE PROJECT, OR GUARANTEE INVESTMENT BY CLP HAS BEEN RAISED FROM TIME TO TIME. IT WOULD BE PREMATURE TO CONSIDER THIS UNTIL THE PROJECT HAS BEEN DEFINED MORE CLEARLY, AND UNTIL THE STRUCTURE AND SHAREHOLDING OF THE COMPANY OR COMPANIES WHICH WILL HAVE TO BE FORMED IS KNOWN. BUT WHEN THE TIME COMES FOR THEM TO TAKE A VIEW EXCO WILL HAVE IN MIND THE FACT THAT THE HONG KONG GOVERNMENT HAS NEVER PREVIOUSLY INVESTED IN A POWER COMPANY OR TAKEN EQUITY IN ANY PROJECT OUTSIDE HONG KONG. THEY WOULD NEED TO BE CONVINCED OF THE ADVANTAGES TO HONG KONG OF DOING SO: AND TO KNOW WHAT LIABILITIES MIGHT BE INVOLVED. EQUITY PARTICIPATION IN A PROJECT INVOLVING FRENCH EQUIPMENT COULD ALSO BE CONTROVERSIAL HERE IN VIEW OF OUR TRADE DISPUTES WITH FRANCE (E.G. OVER THE EXPORT

OF WATCHES).

6. MORE GENERALLY, EXCO ARE BOUND TO BE CONCERNED ABOUT THE VIABILITY OF THE PROJECT SO LONG AS THE FUTURE OF THIS TERRITORY IS UNCLEAR. THE TELEGRAMS SUGGEST THAT DECISIONS ON THE PROJECT COULD BE REQUIRED WITHIN THE NEXT FEW MONTHS BUT I SEE NO (NO) LIKELIHOOD THAT THE TALKS ON THE FUTURE IN PEKING WILL BE

COMPLETED WITHIN THAT TIMESCALE.

7. AS SEEN FROM HERE, THE CHINESE GOVERNMENT'S ATTITUDE WILL ALSO BE INFLUENCED BY THE FACT THAT NEGOTIATIONS ON THE FUTURE ARE NOW IN TRAIN. WITHOUT KNOWING MORE ABOUT THE FUTURE IT IS DIFFICULT TO SEE HOW THE BANK OF CHINA COULD GUARANTEE 90 PERCENT OF THE LOANS FOR WHAT MIGHT DEVELOP INTO A DOLLARS U.S. 10 BILLION PROJECT WHEN THE LOAN REPAYMENTS DEPEND LARGELY ON THE LONG-TERM STRENGTH OF THE HONG KONG DOLLAR. THIS IS OF COURSE ONE OF THE MAIN

ATTRACTIONS OF THE PROJECT FROM THE HONG KONG POINT OF VIEW, BUT IT WOULD BE INTERESTING TO HAVE THE AMBASSADOR'S COMMENTS ON WHETHER THE CHINESE HAVE THOUGHT THROUGH THE IMPLICATIONS.

YOUDE

LIMITED

FED

NED

TRED

HK + GD

MR GIFFARD

MR DONALD

MR GILLMORE

2

ADDITIONAL DISTRIBUTION GUANGDONG NUCLEAR

COPIES TO:

MR MANZIE, DOI

CONFIDENTIAL