Post Office prices cap on the cards

PUBLISHED : Monday, 03 October, 1994, 12:00am
UPDATED : Monday, 03 October, 1994, 12:00am

POSTAL charges are likely to be capped after the Post Office begins operating as a trading fund next year.

Price regulation would allay public and Legislative Councillors' fears that charges might jump after the office switched to the new system, Assistant Secretary for Economic Services Vivian Lau Lee-kwan said.

Under the trading fund arrangement - being introduced to several government departments - the Post Office will be responsible for profits and losses.

A similar price cap is in place for telephone charges. Hongkong Telecom agreed with the administration last year that the average phone cost would not go up by more than four percentage points below inflation.

Ms Lau said it was almost impossible for the Post Office to adopt the same formula because cost structures were different.

While the telephone operator could achieve a higher degree of efficiency through technological advancement, a major cost of the Post Office was wages.

Letter delivery could not be mechanised.

Postage jumped 20 per cent last November, 30 per cent in April 1991, and 30 per cent in September 1988, according to a Post Office spokesman.

Ms Lau said the price cap was meant to assure the public that resources would be used efficiently and was an integral part of the trading fund arrangement.

She said the administration was still mulling over the need for different caps for local and overseas mail, because local mail was heavily subsidised.

A Post Office statement said the proposal was being worked on. No decision had been taken on whether there would be a cap on postal charges.

United Democrat Dr Huang Chen-ya welcomed the idea.

Price regulation was warranted because the Post Office was a public body and should not treat profit-making as its end, he said. The fact that it was a monopoly and faced no competition further stressed the need for price control.

Dr Huang agreed it was unsuitable to set the price cap at a level below inflation because technology might not be able to bring down operating costs as dramatically as in the telephone business.

It had to be fixed at a level that provided incentive for the office to increase efficiency, he said.

Liberal Party legislator Steven Poon Kwok-lim said there was a need for price regulation because the cost of inefficiency should not be passed on to consumers.

But he said he had to analyse the cost structure before knowing whether a price cap was the best way forward.

If it were improperly introduced, it might lead to poorer services.

He said other options included a profits cap or fixing a maximum rate of return.

Last year, the Post Office's revenue hit $2.5 billion, producing a $500 million profit.

The Post Office hopes to set up a trading fund by April to give it greater financial independence from the Government.

At present, if a government department needs additional resources for expansion activities, it has to compete with other departments.

A trading fund, which ploughs back money raised by the service, will avoid this.