TNAG-2981-FCO40-1473-Guangdong-nuclear-power-station-project-1982 — Page 169

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Stones said that our mention of the possibility of overrun costs was a great shock to GPC.

We then turned to HKNIC. Stones said the Chinese had constantly been concerned about the credibility of HKNIC and also who the shareholders would be. They would much prefer to see a direct involvement of the UK and HK Governments since this would represent a total commitment to the project. Other shareholders could quit at any time. Stones said the project had now achieved a political breakthrough and it now needed the UK and PRC Governments to give it the momentum to bring it to finalisation. Stones mentioned that both Baker and Reece had stressed the importance of the UK/Guangdong relationship and this was being construed by the Chinese as the UK being willing to support the project in some overt way. I expressed surprise as it was not my interpretation of Reece's remarks; however I was not present at Baker's meeting.

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Turning back to the question of the guarantees Stones asked if there were any ways round the provision of 100% guarantee by the Bank of China and the availability of counter guarantees. I said I would be surprised if anyone would be prepared to provide a 40% counter guarantee (US$1.5 billion) and that China Light should renegotiate HKNIC's position in the light of the very substantial benefit that they were providing to the project by being willing to purchase sufficient power to service all the loans. The rain problem area was up to the date of commissioning the plant. suggested that the Bank of China might be willing to accept the purchase of electricity as a

a counter guarantee following commissioning but not before. I suggested that the Feasibility Study should be restructured to define more clearly the shareholders responsibilities and to make. provision in the cash flow projections for a more realistic financial structure by including a substantial overrun provision, some of which could possibly be financed by standby credits, the remainder being financed by additional equity from GPC, HKNIC's shareholding being reduced accordingly. (Stones seemed reluctant to do anything which would result in the "red books" being amended. He has developed such a close relationship with Chen Gang that he seems to have lost his objectivity and a sense of realism.)

Stones said that the visit to Guangdong would depend upon an answer being available on the question of the Bank of China guarantee. He expected a decision on the project in May and once a decision had been made there would be much more activity from the other competitors. He was wondering what the UK Government was doing politically to push the project ahead.

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