Panel on Economic Services (Minutes) 9 Feb 98

Provisional Legislative Council

PLC Paper No. CB(1) 1267
(These minutes have been
seen by the Administration)

Ref: CB1/PL/ES/1

Panel on Economic Services

Minutes of meeting held on Monday, 9 February 1998, at 4:45 pm in the Chamber of the Legislative Council Building

Members present :

Hon James TIEN Pei-chun, JP (Chairman)
Dr Hon LAW Cheung-kwok (Deputy Chairman)
Hon HO Sai-chu, 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 LO Suk-ching

Members attending :

Dr Hon Raymond HO Chung-tai, JP
Hon LEE Kai-ming
Hon Andrew WONG Wang-fat, JP

Members absent :

Dr Hon David LI Kwok-po, JP
Hon Allen LEE, JP
Hon Henry WU
Hon Henry TANG Ying-yen, JP
Hon CHAN Yuen-han
Hon Ambrose LAU Hon-chuen, JP
Hon Paul CHENG Ming-fun, JP
Hon TAM Yiu-chung, JP

Public officers attending :

For Item V
Mr Stephen IP: Secretary for Economic Services
Mr KWAN Wing-wah: Deputy Secretary for Economic Services
Mr LI Kwok-tso: Principal Assistant Secretary for Economic Services
Mr L T LEE: Assistant Director of Electrical & Mechanical Services (Energy Efficiency)

Attendance by invitation:

China Light & Power Co. Ltd.
Mr R E Sayers: Managing Director
Mr P A Littlewood: General Manager - Strategic Development & Administration
Dr Albert S C POON: Corporate Planning Manager
Mrs S MAK: Public Affairs Manager
Exxon Energy Ltd
Mr Wayne Harms: Executive Director

Clerk in attendance :

Ms Estella CHAN: Chief Assistant Secretary (1)4

Staff in attendance :

Mr Andy LAU: Senior Assistant Secretary (1)6

I Confirmation of minutes and matters arising
(PLC Paper No. CB(1)837)

The minutes of the meeting on 1 December 1997 were confirmed.

II Information papers issued since last meeting

(PLC Paper No. CB(1)792 - Information paper on the import and retail prices of major fuels from December 1995 to November 1997 furnished by the Census and Statistics Department; and

PLC Paper No. CB(1)848 - Information paper on the proposed retention of a supernumerary post in the Economic Services Bureau for one year to cope with the on-going work associated with the development of the new airport)

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

III Items for discussion at the next meeting scheduled for 2 March 1998

3. Regarding the next meeting scheduled for 2 March 1998, the Chairman invited members to inform the Clerk of suggested items for discussion after the meeting. (Post meeting note : With the concurrence of the Chairman, the next regular meeting had been rescheduled for 9 March 1998 at 2:30 pm.)

IV Delay of the opening of the new airport at Chek Lap Kok

4. Due to the overrunning of the preceding joint meeting of the Panel with the Information Policy Panel, members agreed to defer discussion of the item to a later meeting in view of time constraint. Noting that an oral question and a motion debate relating to the deferral of the opening of the new airport had been scheduled for the coming Council meeting on 11 February 1998, members agreed to include the item on the agenda for the next regular meeting, instead of holding a special meeting to discuss the matter.

V Any other business

China Light and Power Company Limited's proposed 1998 tariff revision

5. Members agreed to discuss China Light and Power Company Limited's proposed 1998 tariff revision under "any other business".

6. At the invitation of the Chairman, the Managing Director of China Light and Power Company Limited (MD/CLP) briefed members on CLP's proposed tariff increase with effect from 1 March 1998. He said that CLP's tariff comprised mainly two elements: a basic tariff and a fuel clause charge. In the light of the prevailing economic situation, the Company had already made an effort to keep the basic tariff increase to a very low level by means of cutting costs and delaying capital expenditure. An additional special rebate of one cent per unit from the Development Fund would also be made available to customers as from 1 March 1998. As a result, the overall basic tariff adjustment for 1998 would only be 1.2%, which was also the lowest amongst other utilities in Hong Kong.

7. As regards fuel clause charge, MD/CLP advised that this was mainly to cover the actual cost of fuel required for the generation of electricity and was simply directly passed through to customers without involving any profit or loss to CLP. Despite the significant deficit built up in the Fuel Clause Account, the Company had managed to forego the two cents per unit fuel clause charge adjustment in October 1997. However, in order to stabilize the continued growth of the deficit, there was a need to make an adjustment in March 1998, not to mention the fact that it would have been 18 months since CLP had last adjusted the fuel clause charge. Even with the present proposed adjustment in place, a projected deficit of $983 million in the Fuel Clause Account would still be envisaged in February 1999.

8. MD/CLP further said that the average increase for all tariff elements would be 4.9%. Upon the proposed tariff adjustment, CLP's average net tariff would still be the lowest in Hong Kong. Whilst CLP was fully aware of the concerns of the Government and other concerned groups, it had managed to keep the impact of tariff increase on small domestic customers to the minimum. Upon tariff adjustment, over 40% domestic customers would experience less than $3 or 2% increase and over 70% for less than $10 increase per month. A typical domestic customer with a monthly consumption of 250 kWh would only experience less than $5 increase per month.

9. The General Manager/ Strategic Development & Administration of China Light and Power Company Limited (GM/CLP) conducted a presentation on CLP's tariff increase and highlighted the various improvement programmes of the Company to cut costs and promote efficient use of energy. He also briefed members on the environmental benefits of using natural gas. Copies of the presentation material were distributed at the meeting for members' reference.

10. In the light of the accumulated profits over the years and the prevailing economic condition, a few members objected to the proposed tariff increase as it would impose extra burden on the business sector and domestic users. They suggested the company to freeze the tariff for one year and to review the issue at a later stage.

11. MD/CLP replied that revision of the basic tariff was the only portion that CLP's shareholders could benefit from. The proposed rate of increase was only 1.2% which was already the lowest amongst other utilities in Hong Kong. As a result of CLP's efforts to cut costs, a rebate amounting to $530 million would be made available to customers over the next year. In order to avoid building up a more serious problem by next year, which would be difficult to manage, CLP had already considered the matter carefully and proposed a moderate tariff increase this year.

12. Referring to the introduction of natural gas and the resulting higher fuel clause charge, a member commented that in considering the implication of the growing deficit of the Fuel Clause Account, he would have to accept the proposed fuel clause charge adjustment reluctantly. However, to relieve the burden on the general public, he suggested that the company should at least freeze the basic tariff.

13. MD/CLP replied that the decision to use natural gas as a fuel for power generation was still a right economic choice. Despite its higher cost, CLP's average net tariff was still the lowest in Hong Kong. With the special rebate from the Development Fund in order to keep the rate of increase for the basic tariff at a low level, the balance of the Fund would be reduced to a level of around $1 billion. In view of the uncertainties faced by the economy, the actual growth rate might fall below the projected growth rates of 3.4% and 4.4% respectively for the current and next year. GM/CLP added that the basic tariff increase was in line with the level permissible under the 1992 Financing Plan. Since the balance of the Development Fund had already reached a record low when compared with the past twenty years, it would put the company at risk if the Development Fund was to be depleted further than what was proposed at this stage.

14. A member, however, opined that since there would not be any substantial infrastructural projects to be put forward in the years ahead, a lower level of Development Fund should have no significant impact on the company. GM/CLP responded that whilst CLP would not be adding new generating capacity beyond the plan already in place for the installation of the deferred units 7 and 8 at Black Point Power Station, there was still a need to reserve sufficient fund for the provision of transmission and distribution systems so as to match the expansion of housing programmes and the development of new towns and the new airport.

15. After discussion, members agreed to follow up the agreements between the Administration and the two power companies on demand side management at the next regular meeting.

Resumption of the importation of live chickens

16. In connection with the resumption of the importation and trading of live chickens, the Secretary for Economic Services advised that the high prices fetched for live imported chickens were not a deliberate policy on the part of the Administration. He clarified that the Government had not imposed any ceiling on the amount of live chickens that could be imported into Hong Kong, but would leave the matter to the market forces of demand and supply. However, in the interest of public health, all birds brought into Hong Kong should be subject to a stringent quarantine procedure. Given the positive feedback of the general public, chicken traders would be prepared to import more live chickens. On the other hand, the Administration would strengthen its enforcement efforts to prevent smuggling of chickens. All imported chickens without accompanying health certificates would be forfeited and destroyed and importers would be subject to a maximum fine of $25,000.

17. After deliberation, members agreed to discuss the matter in greater detail at the next regular meeting.

18. There being no other business, the meeting ended at 5:25 pm.

Provisional Legislative Council Secretariat
17 April 1998