TNAG-2981-FCO40-1473-Guangdong-nuclear-power-station-project-1982 — Page 49

CONFIDENTIAL

5 I believe, therefore, that at the final meeting I shall have

with the Chinese on Friday 26 November I should indicate to Li

Peng that we would be willing to offer a final concession on

credit on condition that he was prepared to agree that the

contract for the conventional island should be awarded to GEC.

My officials have discussed with the Treasury and ECGD two

possible alternatives. The first is the granting of full

capitalisation of interest without strings instead of the

concession we have already made on the financing of local costs.

The alternative is the full capitalisation of interest in

additon to the local costs support. Treasury and ECGD would be

prepared to recommend the first but not the second.

Whilst the

first would undoubtedly be helpful I feel that it would be

worthwhile going for the second if we were able to clinch the

deal. I attach at Annex A a short schedule which shows the cost

and level of subsidy for these two options compared with the

offer we have already made. The discount rate used is the

current long-term dollar bond rate of 11.6% since the financing

is likely to be in dollars.

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器

6 There is clearly a risk that the French will again match our

credit package, but I am convinced that we should make this

improved offer in a final attempt to secure the conventional

island for the UK, and at the same time to give Li Peng a

concession, beyond what was offered by my officials in Guangdong