TNAG-2981-FCO40-1473-Guangdong-nuclear-power-station-project-1982 — Page 155

Confidential

representatives of GEC, Schroders and ECGD.

In discussion Department of Industry emphasised that it was most unlikely that HIK would be prepared to contemplate any significant equity involvement in the project. Mr Davidson said that the question of equity involvement had not been formally considered within GEC, but he thought it most unlikely that his company would be prepared to contemplate equity involvement. It was agreed that these considerations needed to form the basis of further discussions with CLP. Mr Davidson, bewei, undertook to check the position on equity involment of GC and to report back to the Department.

Corsider Following extensive discussion it was agreed that the UK should adopt the following position on the problems associated with the financial structure of the Nuclear Power Company. The UK's opening position with CLP should be that a 100% Bank of China guarantee was vital to allow the discussions on the project to proceed. Neither FG nor GEC were willing to contemplate equity involvement. It would be for CIP to resolve the problems associated with the proposed 10% HOMC equity holding in the nuclear power company. CLP might choose to resolve these problems by reducing the equity holding to, say, 10% and thus making the proposition more attractive to other investors by reducing the contingent liabilities. If this produced a complete impasse, the UK's fall back position would be to consider recommending to Ministers that the UK should seek a com- promise package in which the Bank of China provided a 90% guarantee and, for cosmetic reasons, a finate nominal equity interest was provided by · a combination of HG and/or the Hong Kong Government and the nuclear partner. This nominal equity interest night in total amount to, say, 10% of the total value of the conventional and nuclear islam. ECGD undertook to consider whether they would be prepared to accept a 90% Bank of China guarantee and to report back to the Department of Industry.

It was also agreed that in the course of the proposed meeting with Mr Stones it would be necessary to press him on the views of Emon on the project.

Composition and Timing of UK Mission

Following extensive discussion on the necessary prelimim ry steps, I Havelock invited comments from those present on whether the UK should accept the invitation. Mr Dewe Mathews said that he felt, that the UK must accept, for presentational reasons if for no other. There might be a number of positive advantages to be gained by going to Guangdong, especially if the Chinese party to the further discussions included more people with greater financial expertise than those o had visited the UK in March. Mr Dewe Hathews, however, that it was vital to make clear to CLP before the proposed mission that a 100% Bank Of China guarantee was absolutely necessary. Mr Dewe Mathews also said that in his view it was necessary for the delegation to be prepared to talk about specific ECGD financing terms.

Mr Davidson said that he considered it necessary for the UK to accept the

invitation. However, he underlined that GEC could not hope to secure the business without Goverment support. He wished to feel that the UK Government was at one with GEC, but he remained concerned about the continuing discussions on the Anglo/American option. In particular he expressed disquiet about the activities of the National Iuclear Corporation..

Hr Holloway said that on the information available at present, ECGD was not prepared to be part of the proposed nission. The UK was not yet in a