TNAG-2981-FCO40-1473-Guangdong-nuclear-power-station-project-1982 — Page 88

in

5

CONFIDENTME

e 2

Conventional Island Only (£598m after escalation)

Subsidy element arising from finance package including £90m on grant terms:

A

B

C

D

E

F

(£m)

Aid

Discounted

Provision Aid

Actual

HMG

Discounted

Discounted

(B+D/E)

HMG

Value of

Subsidy

Subsidy

Subsidy

Drawdown

Mement

Dis-

90

63.35

240.79

91.37

357.91

43.23%

count

Rate

12.5%

Dis-

90

59.43

481.58

149.37

335.74

62.19%

count Rate

15%

Amount of aid required (NPV in brackets) to provide discounted debt service cost at 10% equivalent to that which would have arisen if the contract was supported at a range of interest rates between 7.75% and 10%

10%

Dis-

count

Rate

12.5% (£m) (0)

9.5%

9%

28.2

56.0

(19.8)

(39.4)

£90m of aid simulates an interest rate of 8.36%

8.5%

8%

7.75%

82.8

108.6

121.2

(58.3)

(76.4)

(85.3)

10%

9.5%

9%

8.5%

8%

7.75%

Dis-

count

0

28.5

56.5

83.5

109.6

122.2

Rate

15% (£m)

(0)

(18.8)

(37.3)

(55.1)

(.72.4)

( 80.7)

£90m of aid simulates an interest rate of 8.38%

It is envisaged that any injection of aid would be spread over the construction period of the project, ie. approximately 9 years.

17 The greatest constraint is the limit imposed by the size of the ATP budget, £66m a year in cash terms up to 1985/86, but not determined beyond this date. Against this constraint, the Department of Industry considers that the maximum support which could be drawn from the ATP budget would be £10m per year during the construction period a total of £90m.

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Presentation of an aid package to the Chinese

18 The tables above show that £90m would produce a reduction in the interest rate of the whole project (total contract value £1600m of about 0.6%. While an aid input of the order of £90m could be presented to the Chinese in these terms, we believe that it would be viewed against their original expectation of an interest rate of 72%. Pressure to reduce the effective interest rate further would follow. Accordingly we do not consider that this would be the most advantageous way to present an aid package on the project.