TNAG-2981-FCO40-1473-Guangdong-nuclear-power-station-project-1982 — Page 164

CONFIDENTIAL

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DEPARTMENT OF INDUSTRY

ASHDOWN HOUSE

123 VICTORIA STREET

LONDON SW1E 6RB

TELEPHONE DIRECT LINE

01-212 6904

SWITCHBOARD 01-212 7676

R Clift Esq HKG

Head Far Eastern Department Foreign and Commonwealth Office

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GUANGDONG NUCLEAR PROJECT

30 April 1982

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You will by now have seen the report from my Secretary of State to the Prime Minister on the recent visit by a dele- gation from the Guangdong Power Company and China Light and Power Limited. I am very pleased that the technical discussions seem to have gone well; my understanding is that the Chinese no longer have any major doubts as to GEC's capability, and Clark's report (BTC Indus 67) confirms this.

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As we anticipated, the financial discussions were not so smooth and straightforward. We identified to the Chinese the major difficulties which need to be resolved responsibility for cost over-runs and the provision of the comprehensive guarantee by the Bank of China. The Chinese side had obviously not considered cost over-runs and could say no more than that the matter would have to be considered further. On the guarantee, the Chinese stuck firmly to their position that the Bank of China would only issue guarantees to cover 60% of the loans, ie proportional to the Chinese equity share envisaged in the original feasibility study. The Chinese maintain that, as stated in the feasibility study, the remaining 40% should be guaranteed by a reputable international bank in Hong Kong and/or UK or by ECGD. (This latter point is of course based on a misunderstanding of ECGD's role). ECGD's firm position, though, is that as the political risk is entirely Chinese, the Bank of China should provide 100% guarantees.

3 In an attempt to resolve this conflict, Mr Dewe Mathews of Schroder Wagg Limited went to Hong Kong a few days ago and held further discussions with Lord Kadoorie, Sir Sidney Gordon and Bill Stones, and I

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