AT FIRST GLANCE, it looked like a very good deal for the local power companies. When the Government announced on Wednesday its approval for Hongkong Electric Company (HEC) and CLP Power to spend a total of $57 billion on new facilities between now and 2004, local rating agencies immediately upgraded their earnings forecasts.
But that did not stop Maria Kwan Sik-ning, the acting Secretary for Economic Services, from strenuously insisting in the Legislative Council yesterday that the deal was not nearly as good as it seemed to the public.
She reiterated, more than 10 times during a meeting on the issue, that she was fully on the side of consumers and that the Government agreed that competition should be increased in the power sector. And when even this failed to dent the repeated criticisms of lawmakers, the exhausted-looking official responded: 'I feel like I am a little bit of a failure.' There has been strong public outcry over the announcement. Under the plan, HEC - which has a monopoly on power supply to Hong Kong Island - will spend $27 billion to expand its power plant on Lamma Island, while CLP - which supplies Kowloon and the New Territories - will invest $30 billion to refurbish its Castle Peak power plant and extend its network. This is despite the fact that not all of the existing output of the Castle Peak station is currently needed, because CLP already has a 50 per cent reserve of surplus energy. The Audit Commission said this meant consumers had been overcharged $3.4 billion in fees because of this excessive supply.
All this means consumers will have to pay more for their electricity bill in the coming years. It is expected that electricity fees will rise up to 3.5 per cent, or $120, a year on average. This is because under the Scheme of Control Agreement between the Government and the two firms - which lasts until 2008 - profits are pegged at a maximum of 15 per cent of total fixed investments, meaning the more power stations they build, the higher their profits - that is, the more they can charge customers.
But Ms Kwan stressed that the plan was not all bad. She said HEC was only allowed to build one out of the six units it wanted for its Lamma Island extension. Although it would be allowed to carry out reclamation and preparatory work for the other five units, it would not be permitted to buy or install any without a further review of forecasts for electricity supply. And, in future, the companies would no longer be allowed to pass on to consumers any costs incurred from excessive over-capacity. More importantly, she stressed that the Government would explore ways to open the market on electricity supply, with increasing interconnection between the two firms being the first priority.
However, this will take some time. The Government hopes to complete a detailed study on interconnection by the end of next year, but does not expect to determine a long-term strategy before 2003. 'Increasing interconnection is not just pulling a wire from one side [of Victoria Harbour] to the other. It has to be done carefully and there are a number of technical problems to deal with,' Ms Kwan said. 'Reliability of electricity supply is very important. Nobody will accept any power suspension or cut for even a minute.' But legislators from all political parties were not convinced, especially as the Government has been studying the interconnection issue since 1998. They said the existing timetable was too slow, and this meant that the public would continue to pay expensive power bills in the coming years. Independent legislator Eric Li Ka-cheung said: 'Both the Disney theme park and Cyber-Port can be built in five years. Why does the Government need to take so long to finish such a small thing?' Democrat Fred Li Wah-ming went straight to the point: 'The reason is simple. It is because Hongkong Electric rejects the idea of interconnection and this could only be done when the Scheme of Control Agreement ends in 2008'.
Under the agreement, increased interconnection requires consent from the power firms. But HEC has expressed fears that its market position would be weakened by any such increased links, as these would make it reliant on a potential competitor for power supply.
