Panel on Economic Services -- Minutes 6 October 1997

PLC Paper No. CB(1) 581
(These minutes have been seen by the Administration)

Ref: CB1/PL/ES/1

Provisional Legislative Council

Panel on Economic Services

Minutes of meeting held on Monday, 3 November 1997, at 10:45 am in Conference Room A of the Legislative Council Building

Members present :

Hon James TIEN Pei-chun, JP (Chairman)
Dr Hon LAW Cheung-kwok (Deputy Chairman)
Dr Hon David LI Kwok-po, JP
Hon Allen LEE, JP
Hon Henry WU
Hon Henry TANG Ying-yen, JP
Hon YUEN Mo
Hon CHAN Choi-hi
Hon CHAN Kam-lam
Hon Howard YOUNG, JP
Dr Hon Charles YEUNG Chun-kam
Hon Mrs Miriam LAU Kin-yee, JP
Hon Ambrose LAU Hon-chuen, JP
Hon LO Suk-ching
Hon TAM Yiu-chung, JP

Members absent :

Hon HO Sai-chu, JP
Hon CHAN Yuen-han
Hon Paul CHENG Ming-fun, JP

Public officers attending :

Mr Stephen IP, JP: Secretary for Economic Services
For Agenda Item IV
Mr KWAN Wing-wah: Deputy Secretary for Economic Services/1
Mr Joe WONG: Principal Assistant Secretary for Economic Services
Mrs Amy CHAN: Executive Director, Hong Kong Tourist Association (HKTA)
Mr Kent Hayden Sadler: Deputy Executive Director, HKTA
Mr Douglas Gautier: Director, HKTA
Miss Quincy CHONG: Senior Manager, Public Relation Department HKTA
For Agenda Item V
Mr Richard YUEN: Deputy Secretary for Economic Services/3
Mr Michael MA: Senior Town Planner, Port Development Board
Mr Carl Maunder: Government Civil Engineer, Civil Engineering Department
Miss Ophelia WONG: Chief Town Planner, Planning Department
For Agenda Item VI
Mr KWAN Wing-wah: Deputy Secretary for Economic Services/1
Mr LI Kwok-tso: Principal Assistant Secretary for Economic Services
(Financial Monitoring)
Mr Alfred CHAN Wing-kin: Managing Director, Hong Kong and China Gas Co. Ltd. (HKCG)
Mr Ronald CHAN Tat-hung: Executive Director, HKCG
Mrs Grace LAM WONG Pik-har: Public Affairs Manager, HKCG

Clerk in attendance :

Ms Estella CHAN: Chief Assistant Secretary (1)4

Staff in attendance :

Mr Daniel HUI: Senior Assistant Secretary (1)5

I Confirmation of minutes
(PLC Papers No. CB(1)351 and 421)

The minutes of the meetings held on 10 September 1997 and 6 October 1997 were confirmed.

II Information papers issued since last meeting
(PLC Papers No. CB(1)331, 364 and 388)

Members noted the three information papers issued since the last meeting.

III Items for discussion for the next meeting scheduled for 1 December 1997

The Chairman informed members that the Administration had proposed to discuss Hong Kong Electric Co. Ltd.'s proposed tariff revision. He also invited members to forward other proposed items for discussion to the Clerk after the meeting.

IV Government's policy to promote tourist industry
(PLC Paper No. CB(1)412(01) and CB(1)435)

The Secretary for Economic Services (SES) said that there had been a downturn in Hong Kong's tourist industry since June 1997 after a business peak in 1996. The reasons for the downturn included devaluation of currencies in our neighbouring countries and the temporary measure adopted by the Mainland authorities of restricting mainland people from visiting Hong Kong during the handover period in June/July 1997. In addition to Hong Kong Tourist Association's promotional efforts, the Government had provided financial, infrastructural and policy support in order to assist the tourist industry's continued development. In terms of financial support, the Government provided over $400 million subvention each year since 1995/96 to HKTA and in 1996 a $50 million development fund was established to finance feasibility studies on new tourist attractions in Hong Kong. In 1998, the Government would establish a $100 million loan fund to HKTA to support organizing international events in Hong Kong. As regards infrastructural support, the opening of the new airport at Chek Lap Kok next year would address the issue of inadequate capacity of the Kai Tak Airport. A study on manpower training needs of the tourist industry would also be undertaken with a view to upgrade the quality of the tourist industry work force. Government would also examine ways to simplify immigration and customs procedures for tourists. He reiterated that the work to improve the competitiveness of our tourist industry would be a long term exercise and efforts from all sectors including Government, HKTA, airlines, hotels and other people in the trade would be needed. A special working group comprising representatives from interested parties had been established to advise on long term development strategy of the industry.

The Executive Director, Hong Kong Tourist Association (ED/HKTA) briefed members on the work plan of HKTA to promote Hong Kong's tourism industry. (Post-meeting note : A copy of the presentation materials has been issued to members vide PLC Paper No. CB(1)442 dated 3 November 1997).

Noting that some press reports in overseas countries had projected a negative image about Hong Kong after the handover, members enquired about the efforts taken to remedy the situation. ED/HKTA responded that HKTA had invited about 2,000 overseas media representatives to Hong Kong since the handover to let them experience the real situation of Hong Kong after the change of sovereignty. HKTA also conducted overseas visits with ambassadors from various sectors to present the real picture. SES remarked that presenting the real situation of Hong Kong after the handover to overseas countries was very important. Government officials would continue to promote Hong Kong's image during their overseas visits. As regards co-operation with the Mainland's tourism authorities in joint promotional efforts, ED/HKTA advised that HKTA had been working closely with tourism authorities in Mainland China. A joint promotional visit to the United States of America (USA) and Canada with Beijing, Shanghai, Guilin and Xian tourism authorities would be conducted this month. The Pearl River Delta joint promotion had been carried out for some considerable time. In view of Hong Kong's experience in promoting the tourism industry, Hong Kong could become a professional training centre serving the needs of Hong Kong and the Mainland. Members noted that tourists from the Mainland were one of the largest sources of visitors to Hong Kong and enquired about plans to promote this sector of the industry. ED/HKTA replied that Mainland visitors came to Hong Kong mainly for business and/or sight-seeing. The number of visas issued by the Mainland authorities would be an important factor affecting the number of Mainland visitors to Hong Kong. HKTA had reflected its views on the issue to the Hong Kong and Macau Office of the Central People's Government. Noting that the downward trend in the number of visitors to Hong Kong could not be reversed in the short term, members enquired about the forecast decline in the number of visitors to Hong Kong in 1997, and whether recent promotional activities in Japan had yielded any results. ED/HKTA responded that the number of visitors to Hong Kong declined by 4.5% in the January to August 1997 period. The decline in October had slowed down and the forecast decline for 1997 was 4% at least. (Post-meeting note: According to HKTA, latest estimates put the decline for 1997 at about 10% compared to 1996.) As regards price reduction packages offered to Japanese and USA markets, the responses were exceptionally good with some packages being taken up in a short time. ED/HKTA remarked however that price reduction was a short term measure and the long term aim was to increase the industry's competitiveness. Members enquired whether Hong Kong was still considered a "shoppers paradise" by overseas visitors, and whether there was any plan to further promote this attraction of Hong Kong. ED/HKTA replied that according to a survey conducted during the first three quarters of 1997, about 50% of the tourists still considered shopping as one of the major attractions of Hong Kong. Visitors from different countries might shop for different things in Hong Kong. The retailing sector should examine the shopping behaviour of tourists with a view to providing products and services better suited to the tastes of tourists. In its advertising materials, HKTA wished to highlight Hong Kong as a city which would appeal to people with different interests and shopping was one of Hong Kong's attractions. Members enquired whether HKTA would consider advertising Hong Kong as a place where the "one country two systems" policy was being implemented. They also asked whether there were plans to develop Hong Kong's natural beauty in the New Territories, such as Lantau Island, into tourist attractions. ED/HKTA replied that HKTA had prepared a number of short promotional films in which world celebrities spoke of Hong Kong's attractiveness. As regards development of visitor attractions in Lantau, HKTA agreed that there was a good potential to develop some parts of Lantau into tourist attractions and such views had been forwarded to the Territory Development Department and the Planning Department. Mr Howard YOUNG enquired when the Government would decide on whether or not Hong Kong would host a HK Expo in the year 2001. SES replied that the Economic Services Bureau had just received HKTA's feasibility study on the issue which involved major considerations such as the availability of suitable sites for the event, transportation, commercial viability, etc. The Administration would need about two months to study the report before making a decision. Members enquired whether there were figures showing Hong Kong's total tourism receipts and the total value added of the tourism industry as a percentage of the Gross Domestic Product (GDP). ED/HKTA explained that total tourism receipts in 1996 amounted to about $104 billion, which was about 8% of the GDP. As regards total value added of the tourist industry, SES agreed to check with the Census and Statistics Department and provide the information in writing.

V Northshore Lantau Development Study

(PLC Paper No. CB(1)412(02))

The Deputy Secretary for Economic Services/3 (DSES/3) said that the Administration intended to engage consultants to conduct a feasibility study of the port facilities and other land use proposed for Northshore Lantau. The proposed study with an estimated cost of $63 million would be submitted to the Public Works Subcommittee on 12 November 1997 and the Finance Committee on 12 December 1997 for funding approval. He briefed members on the scope and nature of the study as set out in the information paper.

Members enquired whether the study would examine transportation links between North and South Lantau and whether there was an overall development strategy for the whole Lantau Island. The Chief Town Planner/Planning Department (CTP/PD) replied that while transport links between North and South Lantau was the subject of another study, an overall development strategy for Lantau was included in the Territorial Development Strategy Review (TDSR) which had completed the public consultation stage. When the TDSR was completed, Planning Department would take on board the recommendation of the TDSR and review the Southwest New Territories Development Strategy to provide a more detailed development framework for Lantau.

Members pointed out that the construction of container terminals in Northeast Lantau would affect traffic flow and hence the proposed road system in the area, and enquired whether the consultant would also consider the scenario where there would be no container terminal in Northeast Lantau. CTP/PD advised that the consultants would be required to consider various development scenarios including one with Container Terminals No. (CT)10 and 11 and one with full port development in the area.

Noting that a port cargo forecast due for completion shortly would shed light on the need for CT10 and 11, members enquired whether the Northshore Lantau Development Study (NLDS) should be held in abeyance until the completion of the port cargo forecast study. DSES/3 explained that there was no direct relation between the NLDS and the construction of CT10 and 11 because NLDS was concerned with planning of port-related facilities including a river trade terminal, a mid-stream site, a public cargo working area and ship repair yards. To maximize land usage, the study would also examine opportunities to accommodate other facilities which could not be easily accommodated elsewhere in Hong Kong, including a science park, environmentally clean high technology industries, low density housing and resort hotels. The provision of port-related facilities in Northshore Lantau would not need to wait until a decision on CT10 and 11 was made. Planning for CT10 and 11 was a long-term issue. Despite the fact that growth of container throughput in Hong Kong had slowed down in these two years, the long term trend was still growing and Hong Kong had to plan ahead in order not to lose out when the economy grew at a faster pace in future years.

As regards justifications for the cost of the consultancy study, the Government Civil Engineer/Civil Engineering Department explained that the study would cover an extensive area with different development options and $63 million was considered a reasonable price. The study would cover Environmental Impact Assessment and ecological surveys and would take about 18 months to complete, starting in April 1998. SES added that the cost for the study was justified because it aimed to find an optimal use of a large piece of scarce land resource.

In response to members enquiry on reserved land for army facilities and prisons, CTP/PD confirmed that there would be land reserved for a prison and land exclusive for "Government/Institution/Community" uses in the area.

At members request, the Administration agreed to provide more details on the study's cost, scope and required period for completion when the proposal was submitted to the Public Works Subcommittee and the Finance Committee. VI Tariff revision for the Hong Kong and China Gas Co. Ltd.

(PLC Paper No. CB(1)442(02))

With the aid of a computer projector, Mr Alfred CHAN briefed members on Hong Kong and China Gas Co Ltd. (HKCG)'s tariff revision effective from 1 January 1998.
(Post-meeting note : a copy of the presentation materials has been issued to members vide CB(1)442(02) dated 3 November 1997.)

The main points of Mr Alfred CHAN's presentation were :

The basic tariff of towngas would be increased by 0.95 cents per megajoule (MJ) on average, equivalent to about a 4.8% increase. The Monthly Maintenance Charge (MMC) would be increased by 50 cents per month, i.e. from $9.0 to $9.50 per month;
In accordance with the Information and Consultation Agreement between HKCG and the Government signed in April 1997, HKCG had provided the requisite information to the Government in relation to justifications for the tariff revision;
For domestic customers using 1-500 MJ per month, there would be an average tariff increase of 3.96%, or $2.3 per month. Those using 1001-1500 MJ per month would have an average increase of 4.62%, or $11.4 per month. The average increase in basic tariff for domestic customers was 4.52%, or $8.3 per month. About 70% of domestic customers would have a towngas price increase of less than $10 per month;
Towngas tariff increases had been below inflation since 1987, and had declined from 5.2% in 1997 to 4.8% in 1998;
The average price of towngas per 1000 MJ was cheaper than electricity and bottled liquefied petroleum gas; and
Despite the increase in MMC in 1998, HKCG would incur a loss in providing the monthly maintenance service to its customers.

Members enquired whether HKCG had considered the option of not revising its tariff in 1998. Mr Alfred CHAN replied that HKCG's policy was to make moderate price adjustments at regular intervals rather than lumpy increases at irregular intervals. If there was no tariff adjustment in 1998, the increase in 1999 would probably be larger and customers would found it difficult to accept. Moreover, HKCG needed cash to finance its huge capital investments and to improve service. Such investments in 1997 amounted to $800 million and the estimated figure for 1998 was $900 million. HKCG was committed to improving its productivity with a view to reducing pressure on annual price adjustments.

Members enquired whether HKCG could raise cost efficiency by encouraging towngas usage per household thus reducing the per unit cost, and whether there were concessions for old aged customers. Mr Alfred CHAN advised that towngas usage per household was on a downward trend for the past 10 years because the number of persons per household had reduced from 3.5 persons/household to 3.2 persons/household during the period. HKCG had improved on productivity through various means and the improved efficiency had benefitted customers as price increases in the past 10 years were below inflation. HKCG currently had about 1.1 million household customers and the anticipated growth for next year was about 5%, i.e. an increase of 55,000 household customers. He confirmed that HKCG had been offering an Elderly Concession Scheme to old aged customers for three years.

Noting that HKCG's return on capital had increased from 12.1% in 1995 to 13.3% in 1996, members pointed out that if HKCG would freeze the tariff in 1998, the return on capital would probably only fall back to the 1995 level. Mr Ronald CHAN advised that the calculation of return on capital was affected by many factors. For example, if there was capital injection from shareholders in a particular year, the return on capital could change in that particular year. He remarked that HKCG's return on capital was smaller than similar figures of the two electricity companies in Hong Kong. Mr Alfred CHAN added that HKCG's return on total assets in 1995 and 1996 was about the same as those of the electricity companies.

As regards improved services in 1998, Mr Alfred CHAN said that as customers were most concerned about the safety issue, HKCG would on its own initiative send technicians to each household to conduct safety inspection and aim to repeat the regular safety inspection every 18 months. He also advised that in the past five years, there were two towngas related accidents leading to loss of human lives.

In response to members request, Mr Alfred CHAN agreed to provide further breakdown of the number of domestic customers using 500 MJ of towngas or less per month.

There being no other business, the meeting ended at 12:55 pm.

Provisional Legislative Council Secretariat
1 December 1997