TNAG-2981-FCO40-1473-Guangdong-nuclear-power-station-project-1982 — Page 170

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We then discussed the Memorandum I had given stones concerning the above matters (Attachment 3). Once Stones understood all the points made he mentioned that there would be a problem reducing HKNIC's involvement to below 40% as GPC would lose face. I said that we had to face commercial realities and that they should consider a 10% shareholding with a strengthening of the obligations in the offtake agreement. I said HMG might be willing to help in making engineers available from BEI. In his usual way Stones did not give this much value.

We agreed to have a further meeting in which we would outline some of the alternatives that Stones could pursue with the Chinese.

At this meeting Bischoff and I outlined the following four alternatives:-.

1.

2.

Value of Electricity Purchase Agreement

(a) China Light seek to persuade GPC that the value of the

China Light offtake agreement to the project has a value in excess of the 40% guarantee and that Bank of China should give 100% guarantee in return for China Light's willingness to enter into an offtake agreement which provides for all the foreign exchange requirements of the project including full debt service throughout the life of the project.

(b)

An improvement on (a) above would be for China Light to be prepared to enter into a firm offtake agreement at prices established in the Feasibility Study. For this purpose a far more realistic Feasibility Study would have to be prepared.

In both cases the offtake agreement would have to be underwritten by the Government of Hung Kong.

Reduction of shareholding

(a)

(b)

The

HKNIC would only hold 10% of the capital of GNPS with GPC holding 90%. The Bank of China would consequently give a 90% guarantee, which may be sufficient for export credit institutions in U.K. and France. capital invested by HKNIC would still be, say US$160 million, i.e. same as in feasibility study, and therefore would not be a reduced financial commitment. Returns would, however, still have to be attractive to the investors which, basically, would involve slightly higher overall electricity charges; on the other hand, a somewhat higher equity injection by the Chinese would involve slightly reduced loan requirements.

Gradual reduction from 40% to, say, 10% as any cost over-runs occurred with guaranteed minimum return, however, on actual amount invested. Bank of China would guarantee 90% of all foreign borrowings on the understanding that GPC's equity would increase if required up to 90%.