PLC Paper No. CB(1)179
(These minutes have been seen by the
Administration and cleared with the Chairman)
Ref: CB1/PL/EA/1

LegCo Panel on Environmental Affairs

Minutes of special meeting
held on Friday, 20 June 1997,
at 8:30 am in Conference Room A
of the Legislative Council Building

Members present :

    Hon Christine LOH Kung-wai (Chairman)
    Dr Hon John TSE Wing-ling (Deputy Chairman)
    Hon Edward S T HO, OBE, JP
    Dr Hon LEONG Che-hung, OBE, JP
    Hon Emily LAU Wai-hing, JP
    Hon IP Kwok-him

Members attending:

    Hon Mrs Selina CHOW, OBE, JP
    Hon CHAN Wing-chan
    Hon LEE Kai-ming

Members absent :

    Hon MOK Ying-fan
    Hon Mrs Elizabeth WONG, CBE, ISO, JP

Public officers attending :

Mr Benjamin TANG
Deputy Secretary for Planning, Environment and Lands (Environment)
Mr Danny TSUI
Principal Assistant Secretary for Planning, Environment and Lands (Environment)
Mr Ian PETERSEN
Principal Assistant Secretary for Works (Policy and Development)
Mr Peter WINDER
Business Manager
Drainage Services Department
Mr David HALL
Principal Environmental Protection Officer (Sewage Infrastructure)

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

(LegCo Paper No. CB(1)1890/96-97)

The minutes of the special meeting held on 29 April 1997 were confirmed.

II Trade Effluent Surcharge Scheme

(LegCo Paper No. CB(1)1880/96-97 and the Final Report of the Trade Effluent Surcharge (TES) Review (the Final Report))

2. The Deputy Secretary for Planning, Environment and Lands (Environment) (DS/PEL(E)) briefed members on the paper provided by the Administration informing members of the outcome of the consultation on the Final Report. Members noted that a letter accompanying an executive summary of the Final Report had been sent to about 110 organisations representing relevant trades and industries and interested parties to invite their views on the outcome of the TES Review. As of 19 June 1997, the Administration had received comments from 44 organisations and 20 oral enquiries. All enquiries had been responded to promptly.

3. Members also noted that upon request, the Administration had attended the meeting of the Small and Medium Enterprises Committee of the Industry Department on 13 May 1997 and a joint forum of the Industry and Technology Development Council’s seven committees on 6 June 1997 to brief them on the outcome of the Review. The Administration would consider changes necessary to fine tune the TES Scheme in the next three months, taking into account all views collected during the consultation period, and then report to the Panel. It would also individually respond to each and every organisation which had sent in comments during the consultation period. Before it made any changes to the current scheme, the Administration would consult the Panel again.

Appeals

4. Members expressed dissatisfaction with the Administration’s inability to come up with specific proposals to improve the TES Scheme in response to the Consultants’ recommendations and members’ views expressed at the special Panel meeting held to discuss the Final Report on 29 April 1997. As the trades, the Consultants and members all found the current appeal requirement for traders to seek an annual review costly, unfair and inefficient, members considered it necessary that pending a comprehensive review of the TES Scheme, the Administration should at least introduce some interim measures to improve the appeal mechanism.

5. In response, DS/PEL(E) explained that as pointed out at the special meeting, consultation on the Final Report would run until 10 June 1997. Thereafter, the Administration needed time to process the views collected and study them carefully when considering the Consultants’ recommendations. It was therefore impossible for the Administration to come up with any proposals before the end of June. However, the two Branches concerned and the Drainage Services Department (DSD) and the Environmental Protection Department (EPD) had already started to look at the standard procedure for and administration of the appeals mechanism and found that considerable improvements had been made since the introduction of the TES scheme. With the concerted efforts made by the Administration, the appeal process had already been reduced from six to three or four months. Efforts would continue to be made to improve the process. For example, DSD was working on a standard proforma, as part of a "Helping Business Initiative", for submitting the requisite sampling plan and COD reassessment report for appeal purposes. This should make the appeal procedure more straight forward. It would also amplify the existing guidelines on appeals and publicise its telephone hot-line to facilitate enquiries on the appeal procedure. For the longer term, the Administration was also contemplating the following recommendations made by the consultant -

  1. To move away from generic strengths based on industry categories to allow individual measurements in determining effluent quality to obtain an agreed value for each individual trader; and

  2. To reduce appeal costs and hence the overall costs of administering the TES Scheme by simplifying the appeal procedure and extending the validity of the appeal results, potentially in perpetuity.

6. Members noted that as the existing appeal procedure was to a large extent enshrined in law and that the above proposed changes would need to be accompanied by a system that enabled DSD to undertake random audits of the submitted results and impose penalties for falsification of data, changes in law were necessary. Both the procedure to seek Legislative Council’s endorsement of the change and the ensuing legal process would take time. Actual amendment to the appeal mechanism would therefore not be possible before the end of 1997.

7. While assuring members that the Administration was actively examining the above proposals to improve the appeal mechanism, representatives of the Administration also made the following points to set things in perspective -

  1. It was worth pointing out that 75% of all restaurants, which made up 9,000 of the 15,000 TES accounts, paid less than $2,000 a month in TES, which was not a significant cost to most restaurants. In fact, with 15,000 TES accounts in the Scheme, only 500 appeals had been lodged since the Scheme was launched in April 1995. The number of appeals was thus far from alarming.

  2. When the relevant legislations were passed by the Legislative Council in 1994 and 1995, it was with the understanding that the appeal procedures should be such as to discourage frivolous appeals. This was why the process appeared to be cumbersome.

8. Some members opined that the small number of appeals received by the Administration did not reflect the trades’ acceptance of TES as the high cost of appeals (each could cost up to $30,000) and the complicated appeal procedure might have discouraged such actions. They were however also concerned that if traders were given individual measurements as proposed in para. 5(a), the administrative costs of the Scheme would increase rather than decrease. They therefore urged the Administration to work out more acceptable amendments to the appeal mechanism as well as the Scheme in consultation with the trades, and to agree on a timetable for early implementation. For example, instead of relying on one set of generic values, a more sophisticated tier system of charges might be a viable option. In response, representatives of the Administration made the following points -

  1. If the appeal mechanism was simplified and the validity of appeal results extended, the costs of appeals should drop. Given a more equitable and transparent scheme, the number of appeals would also decrease over time. In fact, it was the thrust of the Consultants’ recommendations that the Scheme should not rely on appeals.

  2. As some sampling data indicated considerable variations in effluent strengths within trades and hence considerable deviations from generic values, there was difficulty in implementing a tier system and agree on appropriate effluent strengths and hence charges accordingly.

  3. However sophisticated a tier system was, there were bound to be claims of over payment. In fact, the Administration had always closely liaised with the various trades concerned and it was in response to their views that the recommendation of individual measurement was being considered.

Sampling procedure

9. As regards the restaurant trade’s criticism that the sampling procedure to determine effluent quality was both disruptive and costly, representatives of the Administration made the following points -

  1. DSD and EPD were already studying the feasibility of the Consultants’ proposal to replace with grab sampling the present composite flow- proportional sampling process that required sampling every 15 minutes over a three- to six-day period. They might be able to come up with some conclusions at the end of July 1997.

  2. While agreeing that the appeal process should be simplified, the Administration considered it necessary to conduct a proper exercise to measure the pollution load so as to give reliable readings that could reflect the actual situation. As such, there were bound to be some basic costs as sampling tests were conducted by accredited laboratories whose charge levels Government could not interfere.

Chargeable population

10. Members had divided views on the Consultants’ proposed expansion of the coverage of the TES Scheme by increasing the number of chargeable trades. The Liberal Party was against such expansion unless there were abundant proofs that a particular trade was discharging at very high effluent strengths. In their view, some industries were already investing much efforts and money in improving their manufacturing processes to comply with the Water Pollution Control Ordinance (Cap. 358). It would be unfair to charge them further just for the purpose of increasing potential revenues to help the Sewage Services Trading Fund (SSTF) balance the books. Some members however supported the proposal but emphasised the need to base expansion on a set of fair and acceptable criteria.

11. In response, representatives of the Administration emphasised that the consultants were only proposing to bring in people who had been inadvertently left out in the past, and not to enlarge the pie. It was because of perceived unfairness that they had recommended enlarging the chargeable population. The Review’s conclusion was that although the Scheme had included the majority of those discharging at rates higher than domestic levels, there might be an opportunity to bring in further trades and traders. Such trades might be grouped under "Miscellaneous Trades" in the relevant legislation so as to facilitate future amendments. They further emphasised that all recommendations made by the Consultants would be considered carefully with regard to their financial implications. The Administration was undecided yet as regards whether to include more trades. It had yet to look at the circumstances of each trade in detail. Members could rest assured that the Administration would not add any trade unless there was a definite case.

Charge increases

12. Members were concerned that drastic increases were necessary in subsequent years to cover the rapidly increasing operating costs when sewage treatment facilities gradually came on stream. A member was especially concerned that the suspension of tunnelling works of SSDS (Stage I) might lead to additional costs and hence charge increase. Members were also concerned that over time some of the account holders might have improved their facilities or work processes to such an extent as to be exempted from paying TES. As a result, while the infrastructure would continue to be in full swing, fewer people would be sharing the operational and maintenance (O&M) costs of the Scheme and hence each would have to pay more. In preparation for such development, the Administration was urged to follow up on the motion passed by the Legislative Council urging Government to review SSTF with a view to abolishing the target of full-cost recovery by the year 2000, extending the period in which to achieve a balanced budget, as well as injecting capital into it.

13. In response, representatives of the Administration explained that fee increases were inevitable for the following two reasons -

  1. In accordance with the requirements of the Polluter Pays Principle endorsed by the Legislative Council, the costs of providing sewage services which were very important for cleaning up and protecting Hong Kong’s marine environment were to be met through charges levied on the polluters who used them. This principle of each paying his fair share was reaffirmed by the Legislative Council when SSTF was established and the Sewage Services Ordinance (Cap. 463) enacted. As a result, fee increases would be necessary to recover increases in direct O&M costs necessitated by the commissioning of new sewerage infrastructure projects in accordance with the Polluter Pays Principle to achieve break-even.

  2. The Administration had originally proposed to the Legislative Council in 1994 to set Sewage Charges (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. 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.

14. In addressing concerns highlighted in para. 12, representatives of the Administration also made the following points -

  1. As stated by the Secretary for Works on 29 April 1997, the Administration had no plan to increase sewage charges in the 1997-98 financial year. Although fee increases were envisaged as many new sewerage infrastructure projects would be coming on stream over the next few years, it was too early to say what increases might be proposed. Any proposals for increases in SC would be subject to approval by the Legislative Council in the usual manner.

  2. Instead of going up indefinitely, the O&M costs would stabilise after the completion of SSDS (Stage I) in 2000-01 despite adjustments according to inflation and salary increases. If the sewerage was less polluted in future, it was also possible that some costs might be counter-balanced.

  3. As capital costs were borne by Government and the Administration was going to seek damages from the contractor to recoup additional costs resulting from the suspension of tunnelling works of SSDS (Stage I), the only impact of the suspension was that commissioning of some of the facilities might be delayed and that charges would go up later because overheads were rising at a slower rate than previously envisaged.

15. The Administration further emphasised that the Government was already performing a major role in the provision of sewage services. Apart from making a capital injection of $6.8 billion into the SSTF to cover the capital cost for the High Priority Programme, the Administration was also committed to shouldering all replacement costs. In fact, the Government was shouldering four-fifths of the total costs of the Scheme and the community was required to pay charges that covered only the O&M costs of sewage services. Government was not seeking to make any profit from the Scheme. All fee increases would be introduced simply to cover projected operating deficits. 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 SSTF at zero per cent and waived depreciation charges from the operating account of SSTF.

16. Members pointed out that the proposed increases in SC were not in line with what was agreed at the launch of the Scheme. They agreed that the Panel should follow up on the TES Review further. They also opined that the Financial Secretary should review the operation of trading funds as soon as practicable.

17. As this was the last meeting of the session, the Chairman took the opportunity to thank the Administration, the Secretariat and all supporting staff for their contribution to the work of the Panel.

18. The meeting ended at 9:50 am.


Provisional Legislative Council Secretariat
27 August 1997

Last Updated on 18 August 1998