LegCo Paper No. CB(1)372/96-97
(These minutes have been
seen by the Administration)
Ref : CB1/PL/EA/1

LegCo Panel on Environmental Affairs

Minutes of meeting held on Thursday, 17 October 1996 at 8:30 a.m. in the Chamber of the Legislative Council Building

Members present :

Members attending :

Members absent :

Public officers attending :

Mr A G Cooper: Deputy Secretary for Planning, Environment and Lands (Environment)
Mr K K KWOK, JP: Deputy Secretary for Works (Programme and Resources)
Mr Danny TSUI: Principal Assistant Secretary for Planning, Environment and Lands (Environment)
Mr William TSUI: Assistant Secretary for Works (Policy and Development)
Dr Mike CHIU: Acting Deputy Director of Environmental Protection
Mr David HALL: Officer in Charge of Sewage Infrastructure Group
Mr M T SHUM: Business Manager
Sewage Services Trading Fund
Drainage Services Department

Attendance by invitation :
Restaurant Trade TES Concern Group

Mr Tommy CHEUNG: Convenor
Mr Thomas WU: Member

Clerk in attendance :

Miss Odelia LEUNG: Chief Assistant Secretary (1) 1

Staff in attendance :

Ms Sarah YUEN: Senior Assistant Secretary (1) 1

I. Confirmation of minutes of meeting

II. Date of next meeting and items for discussion

III. Information papers issued since last meeting

IV. Review of sewage charging scheme (Sewage Charge and Trade Effluent Surcharge)

Meeting with the Restaurant Trade TES Concern Group

Meeting with the Administration

I. Confirmation of minutes of meeting

(LegCo Paper No. CB(1)122/96-97)

1. The minutes of the meeting held on 2 October 1996 were confirmed.

II. Date of next meeting and items for discussion

2. Noting that the Urban Council had decided not to support any proposal to grant an exemption order for holding pop concerts exceeding the noise limit at the Hong Kong Stadium, members agreed to delete the item Staging of concerts at the Hong Kong Stadium' from the agenda for the Panel meeting scheduled for 7 November 1996.

III. Information papers issued since last meeting

3. Members noted that no information papers had been issued since the last Panel meeting on 2 October 1996.

IV. Review of sewage charging scheme (Sewage Charge and Trade Effluent Surcharge)

(LegCo Papers nos. CB(1)49, 78, 101 and 131/96-97, and the position paper of the Restaurant Trade TES Concern Group tabled at the meeting and circulated to members not present vide LegCo Paper No. CB(1)144/96-97)

4. The Chairman informed members that the Secretariat had issued a press release on 6 October 1996 to notify the public of this meeting and to seek public views on the sewage charging scheme.

Meeting with the Restaurant Trade TES Concern Group

5. Mr Tommy CHEUNG briefed members on the position paper of the Restaurant Trade TES Concern Group (the Concern Group) tabled at the meeting. The position paper contained the following main points -

The Government had been adopting a delaying tactic and was not sincere in liaising with the restaurant trade to resolve their differences. The Administration had made no attempt to consult the trade on the Trade Effluent Surcharge (TES) Review.
The Government should provide scientific proofs to justify the share by the restaurant trade of 80% of TES payable.
The Legislative Council should set up a select committee to review the policies on Sewage Charge (SC) and TES.

In reply to members' questions, Mr CHEUNG and Mr Thomas WU supplemented the following points -

The entire restaurant industry was badly affected by the implementation of the TES Scheme, especially in the current business downturn caused by economic recession. The number of licensed restaurants had already decreased from over 9,600 to about 7,000 in 18 months since the introduction of the TES Scheme. Although the closure of business was not attributed solely to the TES Scheme, TES was undeniably an additional burden to the restaurant trade which was already in hard time.
The Administration had deliberately included restaurants with high COD value in its samples. The average COD value of effluent discharged by restaurants was lower than the value specified in the Sewage Charges (TES) Regulation. In the survey initiated by the restaurant trade, the trade had made no attempt to tamper with the results since restaurants participated on a voluntary basis. Regrettably, the Administration refused to accept the findings of the survey.
The findings of the sampling surveys on Chemical Oxygen Demand (COD) used as the basis for appeal were valid for one year only and each individual restaurant had to provide updated findings should it intend to lodge an appeal in the following year. Given that each appeal could cost up to $30,000 and the appeal procedures were so costly and complicated, most restaurant operators would rather settle TES than appeal. The small number of appeals received by the Administration and the timely payment of TES by account holders did not reflect the trade's acceptance of TES.
The TES Scheme failed to achieve the intended purpose to improve the environment as restaurants had not been provided with proper guidance on ways to minimise the strength of pollutants in their discharge. So far the trade had been given only one briefing organised by the Hong Kong Productivity Council in April 1996 on the implementation of water control zones.
It was unfair to require the community to pay to clean up pollution caused by past generations. The costs of sewage services should be covered by water charges and rates. Unless the Administration was open-minded on the charging scheme, the TES Review could not resolve the grievances of the restaurant trade at root. The Concern Group called on the Administration to overhaul the charging scheme and inject more capital into the Sewage Services Trading Fund (SSTF). In the Concern Group's view, the restaurant trade should bear only one-third of TES it was now paying. The trade, however, had no intention of passing its burden onto the community or other industries.

Meeting with the Administration

The charging system

7.Some members shared the Concern Group's views that the TES Scheme was unfairly targeted at the restaurant trade. They enquired the viability of including sewage charges in rates as was the case in some overseas countries.

8. In response, the Administration made the following points -

The restaurant trade was the largest single group of pollution contributors making up about half of the TES accounts. In developing the TES Scheme, the consultant had examined very carefully the extent of pollution caused by different industries, and it was found that restaurants discharged around 80% of polluting effluent measured in terms of COD. The amount of TES payable by restaurants was proportionate to the polluting effluent discharged by them.
The Administration considered it inappropriate to single out SC and TES from other operating overheads like salaries and rent which normally constituted a much higher percentage of the overall operating costs of businesses. The Administration did not agree that TES had posed a heavy burden to the restaurant trade or had driven many restaurants out of business.
The experience of nine overseas cities showed that it was unfair to include SC in rates because small buildings with high levels of effluent discharge might end up paying only a small percentage of SC. Thus, inclusion of SC in rates could not reflect the Polluter Pays Principle.

The costs recovery principle

9. Some members called on the Administration to review whether it was viable to charge sewage services on full cost recovery principle. They opined that many trades had already objected to the amount of TES they were now paying. To continue with the operation of the SSTF, unless the Government was prepared to inject capital, the levels of SC and TES had to be drastically increased as shown in the financial projections of the SSTF under different scenarios.

In response to members' views, representatives of the Administration provided the following comments -

In accordance with the requirements of the Polluter Pays Principle and the SSTF, both of which had been approved by the Legislative Council, the costs of providing sewage services were to be met through charges levied on the polluters who used them. This principle of charging was reaffirmed by the Legislative Council when the SSTF was established and the Sewage Services Ordinance (Cap. 463) enacted. The Administration had originally proposed to the Legislative Council in 1994 to set SC at a higher initial level in order to build up a cushion against the need for sharp increases in subsequent years. However, members did not support setting a higher initial charge, hence the minimum charge of $1.20 was adopted. The effect of this was that bigger increases were necessary in subsequent years to cover the rapidly increasing operating costs when sewage treatment facilities gradually came on stream.
The Administration had made a capital injection of $6.8 billion from the Capital Investment Fund into the SSTF. This, together with approved funding from the Capital Works Reserve Fund, was used to cover the capital cost for the High Priority Programme. The Administration was also committed to shouldering all replacement costs. The community was required to pay charges that covered only the operating costs of sewage services.
To minimise the level of increase necessary to generate sufficient revenue to cover the operating costs, the Administration had set the rate of return on fixed assets of the SSTF at zero per cent. It had also decided to waive depreciation charges from the operating account of the SSTF.
The Administration had taken great care to ensure that SC was modest, fair and reasonable and would not pose an onerous burden to the general public. The proposed increases in SC, which were voted down by the LegCo in last July, were generally in line with what was agreed at the launch of the Scheme. In response to suggestions by members to smoothen out the required increases and to recover operating costs over a relatively long period of time, the Administration had prepared a number of projections showing the financial position of the trading fund under different scenarios for the 10-year period up to the year 2004-2005. The projections also indicated the effects of different levels of increases in charges on the fund and what would be required to achieve recovery of operating costs. The Administration pointed out that if the charges were to be increased as originally proposed, about 16% of households would still pay nothing, 56% would pay less than $9 a month, and 97% would pay less than $32 a month. The Administration did not think that these levels of payment were unacceptable to the general public. As a matter of fact, the implementation of the Sewage Charging Scheme had so far been very smooth. There was no difficulty in collecting charges from the general public or the different trades.

The TES Review

10. The Administration advised that in introducing the sewage charging scheme, it had undertaken to review the TES Scheme after a year's operation. The Review would be conducted in an objective and independent manner, hence the commissioning of a consultant different from the one responsible for devising the present TES Scheme. The consultancy selected for the Review was the local branch of an international consultancy with substantial international experience. Its staff included engineers, scientists, economists and professionals from other disciplines. Similar schemes in China, North America and Japan would be examined for comparison. The cost of the basic study was below HK$4 million but there would be additional costs for measurement work.

11. Members stressed the need for the restaurant trade to be consulted on and to participate in the TES Review. They opined that the trade must be provided with channels to communicate with and to express views to the consultant. The Administration acknowledged members' view and said that a public announcement was made on 21 May 1996 for the purpose of engaging a consultant for the Review. On 28 May 1996, over 70 letters were sent to the representative bodies of the 30 TES payable trades inviting views on the objectives and scope of the Review. The response had been good, and views collected including those from the restaurant trade had been incorporated into the study brief. Meetings with representatives of trades, including the restaurant trade, and members of the Legislative Council were held during the period from 18 July to 15 August 1996. The Administration assured members that all views that had been collected in the past would be passed to the consultant, including the investigation report of the Commissioner for Administrative Complaints on the complaint lodged by the restaurant trade on the TES Scheme, the correspondence between various trades and the Administration regarding the TES Scheme and the results of the sampling survey commissioned by the restaurant trade. All the concerns raised by the various trades would be addressed in the TES Review.

12. As regards liaison and consultation with the Concern Group, the Administration said that it had taken a series of actions since the Panel's meeting on 9 February 1996. A letter was sent to the Concern Group on 4 March 1996 inviting comments on the need to carry out a re-testing of the restaurant trade's sampling survey. The Concern Group was invited to attend a briefing on the TES Scheme on 19 March 1996. Following up the briefing, the Administration wrote to the Concern Group on 30 April 1996 to answer the questions it had raised. A further letter was issued to the Concern Group on 28 May 1996 inviting comments on the Review, followed by another one dated 31 August 1996 which listed out what the Administration had done in following up their concerns about the TES scheme since January 1996. However, as of date the Administration had not received any response from the Concern Group.

13. The Administration further advised that the Review was scheduled for completion within five months. The findings and recommendations of the Review would be made available for comment by the affected parties, the Advisory Council on the Environment (ACE) and the Panel. It was premature to anticipate the outcome of the Review, but should the results indicate a need for amendment to the TES Scheme, the Administration would amend the relevant legislation. The consultant had been advised of this and to prepare drafting instructions, if deemed necessary.

Way forward

14. Dr TSE Wing-ling stated that the Democratic Party, while supporting the Polluter Pays Principle, considered it necessary for the Administration to inject capital into the SSTF, broaden the source of revenue, and reduce expenditures. The Democratic Party called on the Administration to conduct an overall review on the sewage charging scheme including both SC and TES, and on the operation of different trading funds . The Democratic Party would oppose any drastic and rapid increases in SC and TES.

15. Mrs Selina CHOW stated that the Liberal Party supported the Review and hoped that it would be conducted in an objective and impartial manner and take into account the concerns of the restaurant trade. Any reduction in TES borne by the restaurant trade must not result in an increase in charges payable by other sectors. The Liberal Party called on the Administration to inject capital into the SSTF.

16. Mr IP Kwok-him said that any proposed increases in TES and SC must be dealt with prudently. He considered it necessary to review the operation of trading funds, in particular the full-cost recovery principle.

17. Ms Emily LAU reaffirmed her support for the spirit behind the sewage charging scheme, which in her view was accepted by the majority of the community. Notwithstanding, Ms LAU stressed the need to explore ways to minimise the level of increases in SC and TES.

18. Members agreed that the Panel would follow up on the TES Review and the issue on operation of trading funds would be taken up by Dr LEONG Che-hung at the House Committee after the motion debate on trading funds at the Legislative Council Sitting on 30 October 1996. The Administration agreed to provide information on the consultation programme under the Review at the next Panel meeting and to arrange a meeting of the consultant with the Panel.

Dr LEONG
Che-hung
Admin.

The meeting ended at 10:40 a.m.

Legislative Council Secretariat

21 November 1996

Last Updated on 18 August 1998