LC Paper No. CB(1)1714/98-99
(These minutes have been seen
by the Administration)
Ref: CB1/PL/ES/1
Legislative Council
Panel on Economic Services
Minutes of meeting held on
Monday, 26 April 1999, at 10:45 am
in the Chamber of the Legislative Council Building
Members present :
Hon James TIEN Pei-chun, JP (Chairman)
Hon Fred LI Wah-ming (Deputy Chairman)
Hon Kenneth TING Woo-shou, JP
Hon LEE Wing-tat
Hon Eric LI Ka-cheung, JP
Dr Hon David LI Kwok-po, JP
Hon MA Fung-kwok
Hon HUI Cheung-ching
Hon Christine LOH
Hon CHAN Yuen-han
Hon Bernard CHAN
Hon CHAN Kam-lam
Hon SIN Chung-kai
Dr Hon Philip WONG Yu-hong
Hon WONG Yung-kan
Hon Howard YOUNG, JP
Hon LAU Chin-shek, JP
Hon Mrs Miriam LAU Kin-yee, JP
Hon FUNG Chi-kin
Member attending :
Hon Emily LAU Wai-hing, JP
Members absent :
Hon David CHU Yu-lin
Hon CHEUNG Man-kwong
Hon Ambrose CHEUNG Wing-sum, JP
Hon Andrew CHENG Kar-foo
Public officers attending :- For Agenda Item IV
- Mr Stephen IP
- Secretary for Economic Services
- Ms Maria KWAN
- Deputy Secretary for Economic Services/1
- Mr Arthur HO
- Deputy Secretary for Economic Services/2
- Mr Richard YUEN
- Deputy Secretary for Economic Services/3
- Mr Howard LEE
- Principal Assistant Secretary for Economic Services
- (New Airport)
- Mr Eric JOHNSON
- Principal Assistant Secretary for Economic Services
- Mr Roger TUPPER
- Principal Assistant Secretary for Economic Services
- Mr Albert K Y LAM
- Director of Civil Aviation
- Mr W Y LEUNG
- Assistant Director (Technical & Planning)
- Civil Aviation Department
- Dr H K LAM
- Director of the Hong Kong Observatory
- Mr S H LAI
- Regulatory Services Controller
- Electrical and Mechanical Services Department
- Mr K C LEUNG
- Senior Electronics Engineer/Special Duty 2
- EMSD
- Mr S Y TSUI
- Director of Marine
- Mr T C SIN
- General Manager/Vessel Traffic Services
- Mr K L TSANG
- Assistant Postmaster General (Corporate
- Development)
- Miss Vera SO
- Assistant Director of Agriculture and Fisheries
- (Administration)
- For Agenda Item V
- Mr Stephen IP
- Secretary for Economic Services
- Ms Maria KWAN
- Deputy Secretary for Economic Services
- Mr Eric JOHNSON
- Principal Assistant Secretary for Economic Services
- Mr K T LI
- Principal Assistant Secretary for Economic Services
- For Agenda Item VI
- Mr Stephen IP
- Secretary for Economic Services
- Ms Maria KWAN
- Deputy Secretary for Economic Services
- Mr K T LI
- Principal Assistant Secretary for Economic Services
Attendance by invitation :
- For Agenda Item IV
- Airport Authority
- Mr Billy C L LAM
- Acting Chief Executive Officer
- Mr Richard A SIEGEL
- Management and Operations Adviser
- Mr Joseph B LAI
- Head of System Services
- Mr Jhan SCHMITZ
- Y2K Contingency Planning - Project Manager
- Mr Y T CHOW
- Y2K Central Programme Office Manager
- The Hongkong Electric Co. Ltd.
- Mr Gary CHANG
- General Manager (Development & Planning)
- Mr Mullar WAN
- Computer Services Manager
- CLP Power Hong Kong Ltd.
- Mr MAK Chai-ming
- System Operation Manager
- Mr Richard BRISBANE-COHEN
- Management Services Manager
- The Hong Kong & China Gas Co. Ltd.
- Mr James Y C KWAN
- Director & General Manager - Marketing &
- Customer Service
- Mr Sunny W K LEE
- Chief Information Officer
- Ms Christina Y M LEE
- IT Quality Management Consultant
- Hong Kong Tourist Association
- Mrs Grace LEE
- Finance & Administration Director
- Ms Bessie MOK
- Senior Manager, Information Technology
- Department
- Container Terminals Operators
- Mr LI Kam-chiu
- Computer Services Manager, COSCO-HIT
- Terminals (Hong Kong) Limited
- Mr John Y C LEE
- Director - Operations, Modern Terminals Limited
- Mr Alan Y LEE
- Managing Director, Sea-Land Orient Terminals Ltd
- Ms Patty Y WONG
- Senior Manager - Information Technology,
- Hongkong International Terminals Limited
- Airline Companies
- Mr Graham KEDDIE
- Year 2000 Programme Manager, Cathay Pacific
- Airways Limited
- Mr Algernon YAU
- General Manager Planning & International Affairs, Dragonair
- Mr Anson CHAN
- Manager Information Technology, Dragonair
- Hong Kong Air Cargo Terminals Ltd (HACTL)
- Mr Anthony WONG
- Manager Director
- Mr Marcus MOK
- General Manager, Information Services
- For Agenda Item V
- Consumer Council
- Mrs CHAN Wong Shui
- Chief Executive
- Mr Ron CAMERON
- Head, Trade Practices Division
- Caltex Oil Hong Kong Limited
- Mr Albert KWOK
- General Manager - Retail Business Unit
- Mr Daniel HWANG
- Manager - HK/S. China LPG Business
- Shell HK Limited
- Mr Robert YOUNG
- Director for HK and Macau
- Mrs Irene HAO
- Public Affairs Manager
- Mobil Oil HK Limited
- Mr Johnnie CHIA
- Vice President & General Manager - Fuels
- Mr Raymond WONG
- Communications Manager
- China Resources Petrochems (Group) Co. Ltd.
- Mr ZHU Dan
- Director, Vice President
- Mr Stephen CHEN
- Deputy Manager (Local Sales)
- Esso Hong Kong Limited
- Mr CHAN Kah-cheong
- Marketing Manager
- Mr Kelvin WONG
- Retail Manager
- For Agenda Item VI
- Consumer Council
- Mrs CHAN Wong Shui
- Chief Executive
- Mr Ron CAMERON
- Principal Trade Practices Officer
- CLP Power Hong Kong Ltd.
- Mr Mike PRICE
- Managing Director
- Mrs Annette HOBHOUSE
- Commercial Manager
- Mrs Sandra MAK
- Group Public Affairs Manager
- Dr Albert POON
- Chief Planning Manager
- Castle Peak Power Co. Ltd.
- Mr Wayne HARMS
- Director
- Mr Norman KREUTTER
- Director
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
(LC Paper No. CB(1)1165/98-99 - Minutes of meeting held on 2 March 1999)
The minutes of the meeting held on 2 March 1999 were confirmed.
II. Information paper issued since last meeting
(LC Paper No. CB(1)1036/98-99 - Import and retail prices of major fuels from February 1997 to January 1999
LC Paper No. CB(1)1040/98-99 - Flight allowance for Flight Operations Inspectors
LC Paper No. CB(1)1141/98-99 - Import and retail prices of major fuels from March 1997 to February 1999
LC Paper No. CB(1)1144/98-99 - Deletion of Directorate Posts in the Civil Aviation Department)
2. Members noted the information papers issued since last meeting.
III. Items for discussion at the next meeting scheduled for 24 May 1999
3. Members agreed to discuss the following two items at the meeting scheduled for 24 May 1999 :
- Airport charges of the Hong Kong International Airport; and
- Demand Side Management programme.
IV. Year 2000 compliance in Government, Government-funded and Government-regulated organizations under the purview of the Economic Services Bureau
(LC Paper No. CB(1)1164/98-99(02) - Information paper provided by the Administration
LC Paper No. CB(1)1164/98-99(03) - Checklist of key issues related to the Y2K problem prepared by the LegCo Secretariat
LC Paper No. CB(1)1164/98-99(04) - Information paper provided by the Airport Authority)
4. Briefing members on Year 2000 (Y2K) compliance programmes in Government Departments and non-government organizations (NGO) under the purview of the Economic Services Bureau (ESB), the Secretary for Economic Services (SES) emphasized that Heads of Departments and NGOs would have primary responsibilities for ensuring Y2K compliance in the respective Departments and organizations. ESB regularly received updated reports from the Departments and NGOs on the progress made. In assessing these progress reports, ESB might consult other government departments such as the Information and Technology Services Department and the Electrical and Mechanical Services Department for technical advice.
5. The Chairman invited representatives of Government Departments and NGOs at the meeting to brief members on the progress of their respective Y2K compliance programmes.
Government Departments
Civil Aviation Department (CAD)
6. Noting that the PABX telephone system in the Air Traffic Control (ATC) Complex was not Y2K compliant and rectification work was in progress, Mr CHAN Kam-lam queried the reasons for not specifying in the supply contract that the system had to be Y2K compliant since it was only recently acquired for use at the new airport. He also enquired about the cost of the rectification work. The Director of Civil Aviation (DCA) advised that the relevant sales and purchase contract had not specified that the system had to be Y2K compliant. The rectification work, which was expected to complete by June 1999, would cost about HK$600,000. Upon Ms CHAN Yuen-han's enquiry, DCA confirmed that the telephone system was for internal communication and not for communication with aircraft.
7. In reply to Ms CHAN's further question on CAD's Y2K contingency plans, DCA advised that the plans included the provision of backup communication facilities, contingency air routes, increase of longitudinal separation between aircraft at the same cruising level from ten minutes to fifteen minutes, deployment of additional staff to air traffic control centre and establishment of a contingency plan co-ordination office in accordance with a region-wide contingency plan developed under the auspices of the International Civil Aviation Organization (ICAO) Asia Pacific Regional Office. He also advised that CAD would deploy additional staff to the ATC centre on a few highly critical dates before Y2K, but the contingency plan co-ordination centre would be operational from 31 December 1999 in accordance with ICAO's regional contingency plan.
8. In reply to Mr Howard YOUNG's question on the methodology used in testing the Y2K compliance of CAD's systems, the Assistant Director of Civil Aviation advised that CAD tested the Y2K compliance of the systems by advancing the date in the systems to 31 December 1999 and observed the performance of the systems in the roll over to Y2K. Representatives from other Government Departments present at the meeting also confirmed that the same methodology as that used by CAD was used in testing Y2K compliance of computer systems in their Departments.
Marine Department
9. Mr Fred LI Wah-ming noted that the China Ferry Terminal's (CFT) sailing schedule display system would be replaced by end of September 1999. He enquired whether the replacement of the system was due to the Y2K problem. The Director of Marine (D of M) advised that CFT's sailing schedule display system had been used for some years and was due for replacement. The opportunity was taken to replace it with a new display system by September 1999 even though no Y2K compliance problem was expected.
Other Government Departments
10. The Assistant Postmaster General (Corporate Development) advised that the Hongkong Post had established a committee since January 1998 to steer the Y2K compliance project. At present 99% of the systems were Y2K compliant. Rectification and testing on the remaining 1% of the systems would be completed by June 1999.
11. The Assistant Director of Agriculture and Fisheries (Administration) said that the Agriculture and Fisheries Department's main concern was to ensure no disruption of supply of fresh food produce during the roll over to Y2K. As the majority of Hong Kong's fresh food produce were imported from the Mainland by road, railway and river boats, and the operation of these import channels did not rely heavily on computerized processing, she did not envisage any disruption to the supply of fresh food produce resulting from Y2K non-compliance. Nonetheless, the supply of fresh fruits and vegetables imported from overseas countries via container vessels or by air could be disrupted if operations of the container terminals or air cargo terminals were affected by problems associated with Y2K non-compliance. In this respect, AFD was preparing a contingency plan, which was expected to be available by end June 1999.
12. The Director of Hong Kong Observatory advised that all of the mission-critical systems in the Hong Kong Observatory had been tested and found to be Y2K compliant.
13. The Regulatory Services Controller of the Electrical and Mechanical Services Department (EMSD) said that the mission-critical computer systems in EMSD were those which held the registers for electrical workers and contractors and gas installation contractors. These systems were Y2K compliant.
Other Organizations
Airport Authority (AA)
14. Briefing members on the progress with respect to AA's Y2K compliance programme, Mr Billy LAM, Acting Chief Executive Officer of AA, advised that paragraph 23 of the information paper provided by the Authority (LC Paper No. CB(1)1164/98-99(04)) listed out the implementational targets from November 1998 to September 1999. The percentage of systems confirmed to be compliant by March 1999 was not very high but substantial progress would be made in the following few months. He agreed that AA had not been able to start the Y2K compliance programme as early as it would have wished because a lot of resources were used to take follow-up actions on issues arising from opening of the new airport and to attend meetings/hearings arising from the inquiries conducted by three different organizations. Although substantive work on the compliance programme only started in November 1998, very good progress had been made. He further advised that in parallel with the compliance programme, a comprehensive contingency plan was being prepared. AA would also synchronise its own contingency plans with those of its business partners including the air cargo terminal operators wherever there was interface involved, and would carry out co-ordinated trials with its high criticality business partners as far as possible on areas where co-ordination was required. On the question of not including a Y2K compliance clause in the purchase contracts of equipment for the new airport, he advised that working under a tight budget, the Provisional Airport Authority decided to adopt a general approach of including a "fitness for purpose" clause in the purchase contract. Exercising its right under the clause, AA had so far been successful in getting the relevant suppliers to rectify the systems if they were found to be Y2K non-compliant.
15. Referring to the systems listed in Annex 2 of the information paper provided by AA, Mr LEE Wing-tat requested additional information on each system's degree of Y2K compliance, consequence of worst case scenario, contingency plan and testing schedule.
(Post-meeting note: Additional information provided by AA has been circulated to members vide LC Paper No. CB(1)1278/98-99(02).)
16. Due to the time constraint, members agreed that detailed discussion on Airport Authority's Y2K compliance programme should continue at the meeting of the Subcommittee to Follow Up the Recommendations in the Three Inquiry Reports on the Opening of the New Airport scheduled for 11 May 1999.
Hong Kong Air Cargo Terminals Limited (HACTL)
17. Mr Anthony WONG advised that at the moment only four of the 28 mission-critical systems of HACTL were not yet Y2K compliant and HACTL expected that rectification work and testing on the four systems could be completed by June 1999. He further advised that HACTL had use an external consultant as well as the services of the Y2K Programme Office of John Swire & Sons (HK) Ltd to conduct quality assessment and progress monitoring of its overall Y2K programme. Staff training, including drills on contingency plans, would start in July/August 1999.
18. Members agreed that HACTL and Asia Airfreight Terminals Limited, the other air cargo terminal operator at the new airport, should be invited to attend the Subcommittee meeting scheduled for 11 May 1999.
Airlines
19. Mr Graham KEDDIE informed members that Cathay Pacific Airways aimed to have all the mission-critical systems to be Y2K compliant by June 1999. Meanwhile, Cathay Pacific Airways was assessing on the compliance status of the critical suppliers which was scheduled to be completed by mid-May 1999. Contingency plans were under preparation and would be refined in the course of time. He supplemented that Boeing and Airbus, the manufacturers of Cathay's aircraft, had confirmed that there was no Y2K problem with respect to the aircraft supplied.
20. Mr Algernon YAU said that Dragonair's Y2K compliance programme was similar to Cathay Pacific Airways', and that the target date of completion of the Y2K compliance programme was June 1999. The manufacturers of Dragonair's aircraft had also confirmed that there would not be any Y2K problem in regard to the aircraft supplied.
Container Terminals
21. Mr Fred LI pointed out that amongst the four container terminals, Sea-Land Orient Terminals Ltd's progress in its Y2K programme was the slowest and enquired about the company's time-table in achieving full Y2K compliance in respect of its mission-critical systems. Mr Alan Y LEE advised that there were 340 computerised systems in Sea-Land Orient Terminals and only 60 of these systems required rectification in respect of Y2K compliance. As at end March 1999, 32 of the 60 systems had been rectified and checked to be Y2K compliant. By end June 1999, there would only be 3 systems which were left to be rectified and tested. Sea-Land aimed to complete the Y2K compliance programme in July 1999.
22. Ms Patty WONG advised that Hongkong International Terminals Limited had completed the rectification work for its mission-critical systems in March 1999 and was preparing the relevant contingency arrangements in consultation with other terminal operators.
23. Mr John Y C LEE said that the management of Modern Terminals Limited accorded high priority to the completion of its Y2K compliance programme and had established a special committee to monitor the progress. At present almost all the relevant computerized systems in the company had been rectified and checked to be Y2K compliant. The company was confident that it could complete the Y2K compliance programme by end June 1999.
24. Mr LI Kam-chiu advised that COSCO-HIT Terminals (Hong Kong) Limited had completed rectification and testing of all its mission-critical systems and was preparing the contingency plans. The company would complete the Y2K compliance programme by end June 1999.
25. Referring to the overall contingency plan in case of disruption to a number of container terminals as mentioned in paragraph 29 of the information paper, Mrs Miriam LAU Kin-yee requested the Administration to elaborate on the progress and details of the plan. The Deputy Secretary for Economic Services (3) DS/ES(3) advised that ESB had formed a port industry wide Task Group comprising representatives from the four terminal operators, the Tuen Mun River Trade Terminal Limited, major mid-stream operators, shipping lines, Customs and Excise Department and Transport Department, to draw up the overall contingency plan by mid 1999. The contingency plan covered three main aspects, including firstly, measures to stop container-carrying vessels to enter the port in case of major disruptions to a number of container terminals in order to avoid congestion at the port. Secondly, there would be measures to restrict container trucks from entering Hong Kong through the road links to avoid disruption to road transportation, if necessary. Thirdly, there would be measures to divert vessels to neighbouring container ports for handling containerized cargoes.
| 26. Mrs Miriam LAU said that the transportation of containers to and from the Mainland would also be affected if operation of the computerized systems of the Mainland's check point at Huanggang was disrupted during the roll over to year 2000. She enquired whether the Administration had considered this potential problem and taken actions in this respect. SES and DS/ES(3) advised that the HKSAR Government and the Mainland authorities liaised closely on improving the cross border traffic and members' concern would be brought up at the liaison meetings. | Admin. |
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27. Mr Kenneth TING Woo-shou was concerned that if some restrained textiles products for export to overseas countries under the quota system could not be shipped out of Hong Kong before mid-night on 31 December 1999 as scheduled due to Y2K problems in the container terminals, there would be implications to the quota entitlement of the Hong Kong quota holders. As the Chairman had pointed out that the subject matter should be under the policy area of trade and industry, SES agreed to refer Mr TING's concern to the Trade and Industry Bureau. DS/ES(3) supplemented that if only one terminal operator's operation was affected, the other terminal operators could render assistance. If all the four terminal operators' operations were disrupted, container handling could be continued through mid-stream operators.
Utility companies
28. Noting that CLP Power Hong Kong Ltd (CLP) was a partner of the Guangdong Nuclear Power Joint Venture Company Limited (GNPJVC) which owned and operated the Daya Bay Nuclear Power Station (DBNPS), Ms Emily LAU enquired whether CLP had examined the investigation report produced by GNPJVC, which indicated that there was no known nuclear safety risk due to the Y2K issue. She also enquired about the worst case scenario in case operation of DBNPS was disrupted because of the Y2K issue. In response, Mr MAK Chai-ming advised that CLP's sister company, the Hong Kong Nuclear Investment Company (HKNIC), was one of the two shareholders of GNPJVC. Whilst CLP and GNPJVC had held discussions on the general issue of Y2K compliance, GNPJVC had the sole responsibility for implementing the Y2K compliance programme in respect of DBNPS. He further advised that GNPJVC had started the Y2K compliance program in 1997 and on 28 January 1999, GNPJVC released its investigation report on the Y2K issue and announced the progress of implementation of the Y2K compliance programme. He emphasized that CLP had attached much importance to the implementation of the Y2K compliance programme in respect of DBNPS. In the regular Interconnection Operation Management Committee meeting, GNPJVC reported that the manufacturer of the nuclear power reactors in DBNPS had been requested to conduct relevant Y2K compliant tests on the reactors and had visited overseas nuclear power stations to learn from their experience in handling the Y2K issue. After all these studies, investigations and tests, GNPJVC had concluded that there was no known nuclear safety risk in the nuclear power station due to the Y2K issue. Nonetheless, GNPJVC had decided that during the roll over to year 2000, operation of one of the nuclear reactors would be suspended for scheduled maintenance work while the loading on the other nuclear reactor would be reduced. In the unlikely event that there was a problem with the operation of DBNPS, its operation could be stopped safely and CLP would have sufficient spare power to ensure continuous electricity supply to its customers during the roll over to year 2000.
| 29. Mr SIN Chung-kai enquired about the standards used by GNPJVC in testing the nuclear power station's Y2K compliance and whether the standards used were internationally accepted standards. Ms Christine LOH asked whether GNPJVC would adopt a similar approach to that of some overseas nuclear power stations and cease its operation for a period of time during the roll over to year 2000. Mr MAK replied that as far as he knew GNPJVC had applied internationally accepted standards in conducting Y2K compliance tests. He reiterated that GNPJVC had attached utmost importance to implementation of the Y2K compliance programme and the relevant authorities in the Mainland, such as the National Nuclear Safety Administration of China were also monitoring GNPJVC's progress in this respect. As requested by Mr SIN, Mr MAK agreed to provide further information on the standards used by GNPJVC in conducting Y2K compliance tests. | CLP |
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| 30. Ms Emily LAU and Mr LAU Chin-shek opined that Hong Kong residents were very concerned about the safety aspect of DBNPS in relation to the Y2K issue. They emphasized that the Administration should actively monitor the quality and progress of GNPJVC's Y2K compliance programme. In response, SES agreed that CLP's experts and the Administration's experts should be involved in monitoring the progress of implementation of GNPJVC's Y2K compliance programme. As requested by the Chairman, SES agreed to request CLP to provide more details on GNPJVC's Y2K compliance programme in a further information paper to be provided in early July 1999. The information paper would also include information on whether all relevant parties present at the meeting have made progress in their Y2K compliance programmes according to schedule. | Admin.
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31. As regards the Y2K compliance programme of Hong Kong and China Gas Company Limited (HKCG), Mr James Y C KWAN advised that HKCG had completed its Y2K compliance programme in respect of the gas safety system and the customer service system. Y2K compliance work on other internal operating systems was 99% completed and the remaining 1% was concerned with replacement of some personal computers. HKCG's Y2K compliance programme would be fully completed by mid 1999. He further advised that HKCG had invested $100 million in purchasing a mainframe computer to enhance its customer service operations and the new computer was Y2K compliant. He supplemented that in order to mitigate the risk, mission-critical systems had been tested by rolling forward their clocks to year 2000. Contingency plans, which involved switching to manual operations in case of disruption, were also formulated. He assured members that HKCG would be able to ensure safe supply of towngas to Hong Kong during the roll over to year 2000.
32. Mr Gary CHANG advised that Y2K compliance programme in respect of Hongkong Electric Company Limited's (HEC) mission-critical systems had been completed in December 1998 and compliance programme in respect of all other systems would be completed by end June 1999. HEC had applied the "EPRI" standards, which were standards commonly used in the United States of America, in testing Y2K compliance of HEC's systems.
Hong Kong Tourist Association
33. Mrs Grace LEE advised that Hong Kong Tourist Association's (HKTA) Y2K compliant programme in respect of its communication system and web site would be completed by end June 1999. HKTA had been working closely with and rendering assistance by providing information to the tourist industry in addressing the Y2K issue. HKTA was also preparing contingency plans, which included setting up of an internal working group within HKTA to co-ordinate contingency measures, a stand-by roster system and maintenance of alternative communication methods to provide tourist information.
| 34. Summing up the discussion, the Chairman suggested and members agreed that the Panel should follow up the progress of Y2K compliance programmes of relevant parties in June or July 1999. | Admin.
Clerk
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(Post-meeting note: The subject has been scheduled for discussion at the special meeting of the Panel to be held on 19 July 1999.)
V. Follow-up on retail prices of major fuels
(LC Paper No. CB(1)1164/98-99(05) - information paper provided by the Administration)
35. Introducing the information paper, SES said that he was appreciative of the oil companies' co-operation in providing data to ESB for analysis. He emphasized that the current exercise had increased the transparency of retail price of major fuels and similar exercises would be conducted regularly in future. The analysis had showed that oil companies had different cost structures and profit margins. The oil companies' profit on net cost in respect of unleaded petrol and automotive diesel were 17% and 11% respectively in 1997, and had decreased in 1998. However, the profit rate on cylinder Liquefied Petroleum Gas (LPG) was relatively high and the Administration hoped that the oil companies could lower the price of LPG through the new mechanism set out in paragraph 31 of the information paper.
36. Mr Fred LI pointed out that the Administration seemed to have accepted that the oil companies' profit rates on unleaded petrol and automotive diesel were reasonable but that on LPG was not. He enquired about the basis for determining whether a profit rate was reasonable. Mr LAU Chin-shek shared Mr LI's concerns. SES advised that it was not within ESB's authority to determine whether a certain profit rate was reasonable or unreasonable. The primary objective of the exercise was to request more information from the oil companies for conducting an analysis on the cost structure of petroleum products and to release the findings to the public. This would increase transparency with regard to the pricing of petroleum products and the public would form their own views on the fairness of the price levels of petroleum products. As regards the oil companies' profit rates, he advised that the current exercise had use a rate of return on average net cost, but if sufficient data were provided by the oil companies, the Administration could calculate other rates of return for comparison, such as the rate of return on capital employed, etc. The Chairman suggested that the oil companies could provide data on corresponding rates of return in respect of their parent companies in overseas countries for comparison purposes. SES hoped that the oil companies could provide the data as suggested by the Chairman when the next exercise was due.
37. Referring to paragraph 31 of the information paper which stated that Shell Hong Kong Limited (Shell) had agreed to adopt a mechanism for reviewing their LPG prices at half-yearly intervals in future, Mr Fred LI enquired whether other oil companies in Hong Kong would adopt a similar price review mechanism and if not, what follow-up action would be taken by the Administration. Mr LEE Wing-tat was concerned that the proposed price review mechanism might still not be enough to lower the price of LPG until real market competition existed in the market. Mrs Miriam LAU Kin-yee noted that under the new price review mechanism Shell would review the changes in the import price of LPG since the last review, forecast the likely price level for the coming six months and adjust the wholesale price accordingly. She enquired how the Administration could verify that the forecast price level of LPG used by Shell in the review was fair. She was also concerned whether data used in the price review could be revealed to the public and whether Legislative Council would be briefed on the result of the review. In response, SES reiterated the importance of increasing transparency in the pricing of major fuels. He urged the oil companies to provide more data to ESB for future analyses. He said that the new price review mechanism for LPG was the first and a welcoming step taken by one of the oil companies and he hoped more could be done in future. He agreed that increased market competition was important and the Administration was examining means to increase the number of retail outlets for petroleum products. In this regard, ESB, the Planning, Environment and Lands Bureau and the Lands Department were jointly examining sites for use as oil refilling stations, including the possibility of establishing refilling stations in some major private residential estates. In addition, the Consumer Council was conducting a study on the functional aspects of competition in the Hong Kong petroleum products industry.
38. Mr Fred LI and Mr LEE Wing-tat considered that the time between price reviews for LPG should be shortened in order to reflect the changes in prices of the relevant imports in the price of LPG in a timely manner. SES said it would be a good thing to shorten the time between two price reviews but the oil companies might have other considerations, such as administrative costs etc.
39. Mr Kenneth TING and Mr HUI Cheung-ching enquired about measures to be taken by the Administration to increase market competition in Hong Kong's petroleum products market. SES advised that the Administration was considering measures which could encourage new entrants to the market. He opined that to be successful there had to be a good business environment before new investments would come in. In the meantime, he urged the oil companies to consider improvements to the price review mechanism on LPG and lower the price of LPG as soon as possible.
40. The Chairman invited the oil companies' representatives and the Consumer Council to offer their comments.
Shell HK Limited
41. Mr Robert YOUNG of Shell said that his company had fully co-operated with ESB in the provision of data for the current analysis. As indicated in paragraph 33 and 34 of the information paper, there was competition in the retail market of petroleum products in Hong Kong. On the profit level of LPG, he said that Shell's profit rate was below the industry's average of 28% on average net cost. He advised that the operating costs related to supply of LPG was high because oil companies had to comply with stringent safety requirements for storage and handling of LPG and continuous decline in LPG volume. As regard whether Shell could conduct more frequent price reviews on LPG, he advised that Shell had decided to conduct half-yearly price reviews in order to achieve a relatively stable LPG price which could also reflect the changes in import prices.
Mobil Oil HK Limited
42 Mr Johnnie CHIA of Mobil Oil Hong Kong Limited (Mobil) advised that Mobil had been co-operative in providing the necessary information to ESB in the current exercise except for some commercially sensitive information. Mobil believed that the market for LPG and other petroleum products in Hong Kong was competitive judging from the number of oil refilling stations in Hong Kong vis-a-vis Hong Kong's physical size. He believed that consumers in Hong Kong were well informed of the product range and services available in the market. He also remarked that oil refilling station business was a highly capital intensive industry. However, LPG retailing was a labour intensive and safety-oriented business, and the trade was facing a problem in that the second-generation of the distributors would not want to stay in the business. Moreover, it required heavy financial resources to comply with the relevant safety requirements in handling LPG.
China Resources Petrochems (Group) Co Ltd
43. Mr ZHU Dan of China Resources Petrochems (Group) Co. Ltd. advised that his company had a relatively short history in the petroleum products market in Hong Kong and its market share in respect of oil refilling stations was the smallest amongst the oil companies. As his company had constructed a new oil depot in 1996, the company's operating cost was very high. Based on China Resources' only cost data, the retail price of the oil products were still low when compared with the relevant unit cost. Nonetheless, China Resources would follow the market trend in its pricing policy. China Resources was also committed to ensuring a steady supply of petroleum products to Hong Kong.
Esso Hong Kong Limited
44. Mr CHAN Kah-cheong of Esso Hong Kong limited said that his company had provided as much data as requested by ESB in the current exercise. He advised that Esso's policy was to price its products competitively in the free market. Since Esso had very few oil refilling stations in Hong Kong, its cost structure was different from other oil companies. He emphasized that the LPG business was labour intensive and safety oriented and consequently the related delivery cost to end users was very high.
Caltex Oil Hong Kong Limited
45. Mr Albert KWOK of Caltex Oil Hong Kong Limited advised that his company had provided data as requested by ESB in the current exercise. He said that under the existing system oil companies had to pay provisional duty on oil products amounting to about $100 million each month in advance and this created interest burden on oil companies. Moreover, he said that the 9% profit on average net cost for unleaded petrol, and 7% in the case of automotive diesel as quoted by the Administration were on the high side. Using other basis as comparison, the profit was 3.5% of pump price for unleaded petrol, and 4.5% of pump price in the case of automotive diesel, both were lower than banks' deposit interest rates. Mr Daniel HWANG supplemented that Caltex's profit on LPG was lower than the average of 28% on net cost. He opined that there were other benchmarks for assessing the profit level of a company, e.g. profit on investment. As regards the price review mechanism on LPG, he said that if and when Shell adjusted its price on LPG after a price review, Caltex would take into account Shell's revised price in determining its new price. He added that as this is a competitive market, Caltex might charge a different price on LPG from Shell's.
Consumer Council
46. Commenting on Shell's price review mechanism on LPG, Mrs CHAN WONG Shui, Chief Executive of Consumer Council, said that consumers would certainly want more transparency in the setting of LPG prices. She hoped that the half-yearly price reviews could be conducted more frequently in order to be able to more correctly reflect the changes in import price of LPG. She supplemented that the Consumer Council believed that increasing free market forces should be the best solution in achieving fair price levels for petroleum products. In this regard, she said that the Council's study on the market structure in respect of unleaded petrol, automotive diesel and LPG would be completed by end of 1999. On a long term basis, the Council hoped that Hong Kong could have a fair competition legislation in ensuring free market operation and providing the Administration with the necessary power to take action against illegal practices and require companies to disclose certain data under specified circumstances.
VI. CLP Power Hong Kong Limited's Revised Tariff Structure
(LC Paper No. CB(1)1185/98-99(01) - Information paper provided by CLP)
Domestic Tariff
47. Members welcomed CLP Power Hong Kong Limited (CLP)'s proposed revision to its domestic tariff structure which would result in the majority of CLP's customers paying less electricity charges. Mr LAU Chin-shek enquired that if CLP's profit in the current year was less than the permitted profit under the Scheme of Control Agreement as a result of the revised tariff structure, whether CLP would seek to increase its tariff rate or transfer funds from its Development Fund in order to top up the profit. In response, Mr Mike PRICE and Mrs Sandra MAK advised that depending on the actual revenue received, CLP might have to transfer funds from its Development Fund in order to implement the revised tariff structure. CLP would not seek to increase its tariff rate because of implementation of the revised tariff structure. However, tariff adjustment in future would be a separate matter.
48. In reply to Mr Fred LI's question on savings to CLP's customers, Mrs Annette HOBHOUSE said that in overall terms, 51% of CLP's customers would be paying less under the revised tariff structure. Mrs Sandra MAK supplemented that the estimated savings were calculated on a full year basis.
49. Mr SIN Chung-kai pointed out that CLP's revenue in 1998 was particularly high as a result of the hottest summer on record and enquired about CLP's forecast sales in the current year. Mrs HOBHOUSE advised that CLP's sales would depend on the weather this year. Given that last summer's high temperatures were record-breaking, she did not expect such high temperatures to continue this year.
50. Mrs CHAN WONG Shui pointed out that since CLP had indicated that its inverted block tariff structure for domestic customers was designed to encourage energy saving, CLP should in its next review of tariff structure, provide data to show whether the inverted block tariff structure had been effective in achieving the energy saving objective. In proposing any new tariff structure in future, CLP should set out clearly the impacts of the new tariff structure on different customer groups. Pointing out that CLP had consulted the Administration and briefed the Legislative Council in the current review of tariff structure, SES hoped that CLP would continue this practice in future reviews of its tariff structure.
Bulk Tariff and Large Power Tariff
51. Mr Kenneth TING welcomed CLP's extension of the off-peak period of the Bulk Tariff (BT) and the Large Power Tariff (LPT) to include all Public Holidays. He said, however, that some members of the Federation of Hong Kong Industries (FHKI) had complained that CLP's tariff for industrial users were much higher than that in neighbouring countries, even after taking into account the BT and LPT. He enquired about the Administration's position on this issue and whether CLP could futher reduce its BT and LPT. SES advised that the Administration understood the concerns of FHKI members and had discussed the matter with CLP. He hoped that CLP could do better in this respect. Mr PRICE said that the current tariff structure was designed to avoid cross-subsidy between one tariff group and another. As the cost of producing electricity in Hong Kong was higher than the neighbouring countries because of higher land cost and heavier reliance on imported fuels, CLP's tariff had to reflect such costs. He also confirmed that the BT and LPT for large customers had already catered for their better consumption pattern.
52. Mr CHAN Kam-lam pointed out that the small and medium enterprises (SMEs) would not be eligible for the BT and LPT although their consumption of electricity was quite substantial. He wondered whether CLP would consider lowering the qualifying quantity for BT and LPT so that some SMEs could benefit. The Chairman added that SMEs played an important role in Hong Kong's economy and hoped that CLP would consider Mr CHAN's suggestion. Mr PRICE noted Mr CHAN's suggestion and advised that CLP had tried to match the cost of supplying electricity to various customer groups with the tariff rate applied to them. The charges on SMEs were close to the cost of supply to this group and there was no option at the moment to offer a concession to SMEs.
VII. Any other business
Withdrawal of membership
53. The Chairman informed members that Mr Martin LEE Chu-ming had written to notify the withdrawal of his membership from this Panel because of other commitments in the Legislative Council.
Establishment of a Subcommittee to Follow Up the Recommendations of the Three Inquiry Reports on the Opening of the New Airport
54. The Chairman reported that subsequent to the Panel meeting held on 22 March 1999 and the Joint meeting of the Panel on Economic Services, Panel on Home Affairs, Panel on Planning, Lands and Works and Panel on Public Service on 14 April 1999, the House Committee recommended at its meeting on 16 April 1999 that a subcommittee should be formed under the Panel on Economic Services to follow up the recommendations of the three inquiry reports on the opening of the new airport. Members agreed on the establishment of the subcommittee. The first meeting would be held on 11 May 1999 at 2:30 pm to discuss the follow items :
- matters arising from the joint meeting of the four panels held on 14 April 1999; and
- new membership of the Board of the Airport Authority.
55. There being no other business, the meeting ended at 1:15 pm.
Legislative Council Secretariat
21 July 1999
