China Light and Power Co Ltd (CLP) was asked not to act rashly after it had threatened to pull out of the Hong Kong market if no agreement could be reached with the government on the future profit ceiling.
Secretary for Economic Development Stephen Ip said it would be meaningless if CLP acted on impulse. He pointed out that power companies did have social responsibilities, and they could not ignore people's wishes.
Ip made the appeal yesterday at a meeting of the Legislative Council's Panel on Economic Services that discussed a consultation paper on the future development of the city's electricity market.
The government has proposed in the consultation paper to lower the margin of permitted profit of the two power companies when the present Scheme of Control of Agreements expire in 2008.
To better protect the environment, it also proposed different rates of return ranging from 7 per cent to 11 per cent for various types of assets to reflect different kinds of investment by the two companies.
For example, the use of renewable energy is allowed an 11 per cent rate of return, but that for emission reduction facilities is the lowest to avoid passing on the cost of these facilities to consumers.
Ip said the existing permitted profit margin - 13.5 per cent - is "too high" and must be lowered so that the citizens can pay lower tariffs while maintaining a stable power supply and a clean environment.
"We intend to lower the profit margin to around 9 per cent on average," he said. "The power companies can make money, but the profit margin must be reasonable."
Deputy Secretary for Economic Development and Labour Howard Lee added that the permitted profit margin was the upper limit and in no way would the power companies be guaranteed such a profit level.
If the permitted profit margin was lowered to something like 9 per cent, he said there would be a 15-20 per cent reduction in the amount of the electricity bills.
He also said the mainland electricity market was not expected to provide adequate power supply to Hong Kong in the short term.
Consequently, the government is inclined to extend the agreement with the two companies on the revised terms for a period of 10 years (plus a 5-year extension option) instead of a usual 15-year agreement.
But Wong Kwok-hing of the Hong Kong Federation of Trade Unions said that the new agreement would in fact protect the two companies as no new competitor could enter the market during that time.
The Democratic Party's Sin Chung-kai proposed a straightforward 15 per cent tariff reduction and asked if there would be a tariff reduction mechanism in the future.
Chan Kam-lam of the Democratic Alliance for Betterment and Progress of Hong Kong said the public could find the 7-11 per cent formula too complicated and proposed a rate of return of 8 per cent across the board.
In early 2005, the government published a consultation paper to seek public views on the future development of the electricity market.
To further consult the public, it has recently summed up the written submissions and the government's position in the phase two report. The consultation period will end in March.
At the separate meeting of the Panel on Environmental Affairs, Deputy Director of Environmental Protection Roy Tang said both the Guangdong and Hong Kong governments felt confident that the emission reduction standard would be achieved by 2010.
Yet since power generation remains the biggest pollution source and the amount of sulfur dioxide emission accounted for 92 per cent of the total emission, the government would urge the two power companies to drastically reduce the volume of emissions. "Since use of renewable energy will attract an 11 per cent of rate of return, this will be an added financial incentive for the power companies," he said.
(HK Edition 01/24/2006 page4)
