Top adviser slams scheme of control
Energy Advisory Committee chairman calls for government to look at alternative electricity charging mechanisms
Hong Kong's electricity regulation system is detached from economic and political reality, a key government adviser has warned, intensifying public debate before a review that will consider new ways of managing the sector.
Otto Poon Lok-to, the chairman of the Energy Advisory Committee, said yesterday that the asset-based regulatory system, introduced in 1963 and due to expire in 2008, was outdated while its 15 per cent guaranteed return on assets was too high.
The government will solicit public views on a replacement for the scheme of control at the end of this month as part of a two-stage consultation exercise, according to papers prepared for next week's Legislative Council panel meeting.
'The scheme of control fails to respond to the existing economic environment and political risks,' Mr Poon said. 'The 13.5 per cent return is very high compared with the prevailing low interest [rate] regime.'
The scheme, which ties the profits of Hong Kong power firms - CLP Holdings and Hongkong Electric Holdings - to spending on power assets, mandates an annual return of between 13.5 per cent and 15 per cent on net fixed assets in use.
Hongkong Electric, the dominant power supplier on Hong Kong Island and Lamma Island, rejected charges of earning excess returns on capital, but yesterday seemed to soften its resistance to fundamental reform of the system.
'The scheme of control is not perfect, there is room for improvement,' said Wan Chi-tin, a general manager of corporate development at Hongkong Electric.
'We are open-minded as to the way forward and the future market structure.'
In October last year, the firm's group managing director Tso Kai-sum described the scheme of control as 'the best arrangement for power companies, shareholders and customers'.
Making reference to overseas deregulation, Mr Poon called for the government to explore alternative charging mechanisms.
In overseas markets, tariffs, and so returns, were variously linked to the consumer price index, fuel costs and measures of efficiency, he said.
Critics have slammed the Hong Kong system for providing power firms the highest equity returns in the world. However, Mr Wan yesterday used the broader measure of return on invested capital to reject claims of excess returns.
Citing recent UBS research reports, he said Hongkong Electric made a 16 per cent return under this measure in 2003, the same as CLP, but far behind 29 per cent scooped by dominant gas supplier Hong Kong and China Gas.
He also defended the near 26 per cent premium that Hongkong Electric customers were paying for electricity, based on average net tariffs, compared with customers of CLP.
'We are less cost-effective as our largest group of customers [commercial users] consume more electricity in the daytime. We also have higher construction and operating costs as a result of limited land resources for power stations.'
Unlike CLP, the firm was not able to sell power to the mainland, he said.
CLP, which sells electricity to Kowloon, the New Territories and Lantau Island and exports surplus power to Guangdong, highlighted a need to offer sufficient incentive to power firms to continue investing in future supply.
'Hong Kong needs a long-term, stable and balanced regulatory framework for the future,' CLP Power planning director Chan Shiu-hung said.
