Mr Kang said a fixed price was offered in the first 10 years because the plant would face a peak period for interest repayments in that time.

Zhangzhou has been selling its electricity for industrial use for about 00.50 yuan per kWh and for domestic use at less than 00.40 yuan.

Zhangzhou mayor Li Tiansen did not think the fixed price offered to Formosa was high.

He said Formosa owned its own coal mines overseas which would supply the Houshi plant, and China would not guarantee the coal supply.

The plant would be funded by Formosa, which would remit the money to Zhangzhou.

Deputy major Yang Shuilai said: 'We are providing neither financial support nor any guarantee to Formosa's borrowings for the plant.' The Houshi power plant, with a capacity of 3,600 MW and costing US$3.5 billion, is to be developed in several phases.

Mr Yang said the first phase, including two 600 MW generators and port and coal storage facilities, would cost $1.7 billion and would start generating power in 1999.

Formosa would install the remaining four generators in another two years and the whole project would be completed by 2001, he said.

The plant will be operated on a build-operate-transfer (BOT) basis, with a tenure of 23 years.

Beijing is encouraging regional governments to adopt BOT deals to lure foreign investment for infrastructure.

The Houshi tenure is seen as exceptionally long compared with existing BOT projects on the mainland.

The power plant will enjoy the standard tax incentives - three-year profit tax exemption and two years of 50 per cent reduction.

It has to pay 17 per cent value added tax.