Rather we see it as our responsibility to fulfil our obligation under the Scheme of Control Agreement to ensure an adequate and reliable supply of electricity to our customers.

I hope that our past record on reserve margin speaks for itself on this point.

The reason we are pursuing the proposal to add generation units at the Lamma Power Station site is that by 2003, there will be no surplus capacity in either the Hongkong Electric Company (HEC) or the China Light & Power (CLP) systems.

In 1998, the combined reserve margin of HEC/CLP is 47.7 per cent.

Assuming an annual maximum demand growth of four per cent (the growth figures in 1998 were five per cent for HEC and 4.7 per cent for CLP respectively) and no major plant installation by either power company, by 2003, the combined reserve margin will drop to 24.7 per cent, which is below the acceptable level of 25 per cent.

It is evident that the interconnection proposal cannot satisfy the demand for electricity on Hong Kong Island since the total capacity for Hong Kong, Kowloon and the New Territories will not be enough.

The proposal from CLP to sell power to HEC was rejected by the Government and the Legislative Council in 1997 as not being economically viable.

As explained by us at a recent meeting of the Legco Panel on Economic Services, using the interconnection for regular and firm transfer of electricity would adversely affect the reliability of supply to our customers due to an inherent instability problem in the south China-CLP-HEC interconnection system.

There have been six cases when HEC had to decouple from the interconnectors to avoid a blackout, and another 20 incidents with serious faults in the CLP and south China system causing partial loss of supply in the whole power grid.

The reliability of power supply to Hong Kong, given that it is a major financial and trading centre, cannot be put at risk.

As regards the impact on tariffs, our estimate is that with the Lamma extension, the average tariff increase up to 2012 will be below three per cent, with the increase being higher in the early years.

Contrary to common belief, building new units at Lamma will improve the air quality of Hong Kong, because the new units using natural gas will be used as base load in place of the existing coal units.

On the other hand, CLP's coal/oil units produce much more in the form of pollutants than HEC's gas units. By 2003, if CLP was to sell electricity to HEC, it would have to run more of these coal/oil units because energy from its nuclear, pump storage and gas units will be all used up to meet its own system demands.

The Lamma extension will help to stimulate the economy of Hong Kong, and provide employment opportunities for 2,750 people. We already actively participate in the promotion of energy efficiency through demand-side management, and will continue to do so.

Our aim continues to be to strike a balance between the interests of our consumers and shareholders in providing the clean, cheap and reliable electricity that underpins Hong Kong's leading position as a financial and trading centre.

JULIANA MA Public Affairs Manager The Hongkong Electric Co Ltd