TNAG-2981-FCO40-1473-Guangdong-nuclear-power-station-project-1982 — Page 71

CONFIDENTIAL

ACTION

MEE4

(Mrs Bell)

4 Mr Donald gave an account of the PM's visit to Canton, which had been very brief. The record of the visit now available from No 10 was accurate, whereas the note handed by Mr Stones of CLP to Mr Havelock in Hong Kong seemed an amalgamation of several different reports and for that reason was not helpful in clarifying Chinese thinking at the provincial level. Mr Donald felt that the central Chinese authorities were being subjected to requests from various directions to discuss the project with all possible suppliers, and that until precise terms and prices had been proposed, no doors were being closed to any approaches; but in his view the Anglo-French option seemed to have the preference of the Chinese in Peking.

5 Mrs Bell asked whether Mr Donald thought that a further visit by Sir Walter Marshall had been discussed by the FM in Canton and Mr Donald replied that, as he recalled, such a visit had not been discussed, although the Prime Minister referred to the recent visit he had made.

6 Mr Manzie said that he had always tended to favour collaboration with the French. He now thought options should be put to Ministers in the light of the Prime Minister's meetings in China, with a recommendation that an Anglo-French option would be pursued. The meeting agreed. A minute from the SOS for Industry to the Prime Minister was the next logical step, but the timing of this as against the reply to the French request for a meeting needed to be considered. Mr Havelock said he would prefer to speak to the French before the Chinese visit to Paris. Mr Uden mentioned that Mr Haskell of NED/FCO would be visiting the French foreign ministry in the week beginning 18 October.

This was noted. Mr Sedman said that ECGD had met officials from DREE in the

previous week to discuss other issues. The Guangdong project had, however, been discussed. The French were looking at their two options (the Anglo-French approach, and an all-French bid), and had said that their 1980 finance offer was now definitely withdrawn with no prospects of a similar package on offer now. The French were prepared to offer an interest rate of 11% over 15 years for the nuclear island, and 10% over 10 years for the conventional island. No local costs would be covered, and there would be no capitalisation of interest. However, it was likely that the French would be willing to match the UK bid and others to the extent of offering 10% for both islands, with local cost cover. They were unwilling to consider capitalisation of pre-commissioning interest unless there was a need to match, and took the view that the Chinese should play a greater role in financing the project.

Aid was completely ruled out, on the grounds that France did not provide aid for "socialist" countries or for nuclear projects. Mr Sedman said that the French did not regard China as a bad risk, but regarded our terms as "very generous", and concluded that the French were aiming essentially to match the UK terms.

7

Mr Manzie asked whether the project was viable on the financing terms offered so far. He thought not, given the assumption of 72% interest rates in the feasibility study; Sir Sidney Gordon had also told him that it was not worthwhile negotiating further unless there were an interest rate on the finance package of 81% or even possible 72%. Mr Havelock said that CLP's further work on economic aspects had confirmed that a negative cash-flow resulted if the interest on the export credit was at a higher rate than 8%.