Shell rejects LPG proposal

PUBLISHED : Tuesday, 16 May, 2000, 12:00am
UPDATED : Tuesday, 16 May, 2000, 12:00am

Shell, the biggest oil company in Hong Kong, said last night it would not convert filling stations to offer cleaner liquefied petroleum gas (LPG) unless the Government put forward a better offer.

In a response to government criticisms, company director Robert Young said officials had only offered to waive land premiums for their stations for an unspecified period once their current leases expired. But he said none of the leases on about 15 sites the Government targeted for the LPG taxi scheme was due to expire in the next 10 years.

'It is like the landlord of a flat taking a room back but saying he is not going to reduce the rent,' Mr Young said, suggesting the Government should consider returning part of the premium that had already been paid. Shell paid more than $500 million in 1997 for leases on seven filling stations. He said the land premium issue had put the firm in a 'very difficult position' with regard to competing with other LPG suppliers.

The Government earlier granted five new LPG filling station leases to China Resources and the Hong Kong and China Gas Company without land premiums. The companies agreed to offer LPG to drivers at $2.01 and $2.04 a litre respectively. Mr Young said the import price of LPG was now about $1.60 a litre.

'The Government awarded the tender by just looking at the retail price but ignored the companies' ability to provide a complete network.

'If we accept this offer and put up a price tag of $2, then the money we have paid for the filling stations will effectively go down the drain.

'How can we compete with other LPG companies which pay nothing for the land? How can we justify to our head office a money-losing proposal just by saying we have to do some good for the community? All we want is a level playing field in a free-market economy.' Mr Young said modifying a filling station for LPG would cost $4 million and that the LPG scheme was not a profitable business. He said of the 15 sites from which Shell intended to supply LPG only two were in urban areas and 'only 3,000 out of 18,000 taxis in Hong Kong are in the New Territories, so I don't think there will be enough business for the station there'.

The war of words between the Government and Shell started on Saturday, when the Secretary for Food and Environment, Lily Yam Kwan Pui-ying, said oil companies were not co-operating with the scheme. She also accused them of taking advantage of it.

Mrs Yam and Chief Executive Tung Chee-hwa last week announced plans to speed up anti-pollution measures, with the focus on cutting vehicle emissions. One key component is offering taxi drivers incentives to switch to LPG.