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  • Dec 27, 2014
  • Updated: 1:24pm

CLP

CLP Group (its holding company is CLP Holdings Ltd) is an electricity company in Hong Kong with businesses in a number of Asian markets and Australia. Incorporated in 1901 as China Light & Power Company Syndicate, its core business remains electricity generation, transmission, and retailing.

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LEADER

Hong Kong needs to rethink power company's sweet deal

PUBLISHED : Thursday, 07 March, 2013, 12:00am
UPDATED : Thursday, 07 March, 2013, 2:35am

The warning of hefty tariff increases by the city's top energy supplier is a case of déjà vu. After imposing a 5.9 per cent tariff increase early this year, CLP reiterated that electricity prices could rise 40 per cent within a few years, saying the switch to natural gas has pushed up fuel costs. The gloomy picture should not come as a big surprise. The power giant first sounded the warning last year after being forced to cut back its annual increase substantially. The rhetoric is nothing new but it is guaranteed to generate outrage, coming from a monopoly that earned HK$8.3 billion last year.

It does not take an expert to tell that clean energy comes at a price. For the sake of a better environment and public health, households and businesses should be prepared to pay more under the user-pays principle. The company is perhaps just being frank about rising costs as it uses more natural gas. Tariff increases appear to be inevitable. The question is how much more people are willing to pay, and whether there is an effective mechanism to ensure the company is not charging more than it should.

Regrettably, energy users are not in a position to tell whether the increase sought by the utility every year is justified or not. A deal with the government currently guarantees CLP and Hongkong Electric a 9.9 per cent rate of return annually on their investment. The so-called scheme of control, a colonial legacy in which utilities are promised hefty profits in return for reliable services, will stay at least for another five years. It is difficult to see how such a sweet deal can be preserved amid growing pressure for tighter government monitoring of public utilities.

Announcing an 11 per cent drop in profits, the company vowed not to accept any "unfair or one-sided" changes to the agreement. It is true that the political environment has put CLP and other public utilities in an increasingly difficult position. But the days of lucrative business deals have long gone. While the company is entitled to reject unfair terms, the public is also unlikely to swallow deals that put commercial gains ahead of public interest.

The century-old company prides itself on being socially responsible. It should take into account the affordability of its services when adjusting tariffs. A strong balance sheet and good business prospects mean the company is in a position to adopt measures to ease the impact on users. Officials are also expected to play a better gate-keeping role on adjustments.

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caractacus
The increase in energy prices has nothing to do with clean energy, which is a red herring. The Hong Kong public face massive increases in energy prices because of a dirty, under the table political deal between the Hong Kong Government and state owned PetroChina which forces Hong Kong energy companies to buy their supplies at inflated prices when much cheaper energy supplies are available in the open market.
One wonders who in our previous administration was behind this. Does C. Y. Leung's administration have the will or courage to repudiate the agreement? Not likely.
One also wonders which mainland politician's families and their cronies will benefit.
This stinks of corruption on the grand scale.
megafun
HK need clean power and further reductions in GHG; which can only happen if our grids are "Open". For a place that is suppose to be market driven, how can we allow "private" grids, or roads-for-electricity? Imagine, KMB is the only Company allow onto our public roads? Afterall, the grid sits on public land, or land that is leased just about free! or subsidized - since the Government pays for the land's site formations & drainages.
ianson
Yes, monopolies require special scrutiny but, please, get real. The "sweetheart deal" that is causing the tariff increases is the one between the Hong Kong and Communist Party governments and that's the one that needs the greater scrutiny. Why was it struck? Who did Sinopec pay off?
dunndavid
Forcing CLP to switch from natural gas will lower SO2 emissions slightly although CLP already has flue gas desulpherization equipment in place which reduce SO2 emission by probably 95-98%. On natural gas those SO2 emissions will be zero. As for NOx natural gas will provide only limited reduction potential. Larger particulates are already effectively removed at CLP's power plants. Natural gas conversion will provide further reduction. All of the above suggests that the coal for natural gas substitution takes place at CLP's boilers only, however should the increased use of natural gas prompt increased use of gas turbines, reduced SO2 and large particulates could be even more substantial. The issue is what happens with a large increase of electricity rates in Hong Kong? Certainly one effect will be to cause more companies to shift more work away from Hong Kong and into China, particularly close-by Guangdong. For many companies, electricity is a significant cost. By shifting work from Hong Kong into China you are in fact shifting electricity demand from a place of low emissions and effective regulation into an area of high emissions and poor regulation. China does not have effective SOx, NOx or large particulate removal from data I have gather from my business activities. Much of this additional pollution will end up blowing back into Hong Kong, increasing Hong Kong's pollution. This is the unintended consequences of this myopic policy. David Dunn www.airmonitor-china.com
megafun
Electricity costs generally account for less than 5% of any business operation in HK, and for residential that percentage is even lower, since rent/mortgage payments are so high! Therefore nobody is going to move out of HK due to any increase in electricity costs, nor move into Hk even if electricity is free - as is the case for alot of residential households since the Budget had given the power companies a "gift"!!!
rpasea
The real issue here is who in govt negotiated the deal to sole source natural gas from a Chinese supplier at above the market rate CLP was paying. This deal stinks and ICAC should investigate.
dynamco
so who negotiated the current Scheme of Control from the Government's side to sign the bilateral contract ? was that Edward Yau ? Seems like CLP is just asking for what was agreed in the contract. Was it Edward Yau who signed off on the renewed KMB and Citybus / NWFB bus franchises as his farewell from his failed tenure as ENB Secretary ? why does he still have an overpaid office manager job in Government ?

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