Challenge to electricity giants could benefit consumers, says Stephen Ip The government has hailed the possibility of increased competition in the electricity sector, a day after a small listed company unexpectedly said it would challenge the duopoly of CLP Power and Hongkong Electric. Secretary for Economic Development and Labour Stephen Ip Shu-kwan yesterday welcomed the planned investment by media firm Vertex Communications and Technology Group, which has joined up with mainland giant China Power International Holding in a joint venture that will source power in Guangdong for sale in Hong Kong. 'We welcome any new players, in addition to the existing two power utilities, who will give customers choice,' Mr Ip said, adding that cross-border supply arrangements were among a number of options the government was considering in its review of the industry's regulatory regime, or scheme of control. A spokesman for acting Chief Executive Donald Tsang Yam-kuen also confirmed the government had been briefed on the project. Vertex is listed on the Growth Enterprise Market and headed by former CLP Power general manager and ex-legislator Steven Poon Kwok-lim. China Power is headed by Li Xiaolin, the daughter of former premier Li Peng . 'With a bit of luck, we hope to connect to a certain number of [Hong Kong] customers by the end of this year,' Mr Poon said yesterday as news of the venture sent shares in his company soaring. 'It is only a matter of time before power generation is separated from distribution and transmission. Breaking CLP and Hongkong Electric's monopoly will be difficult, but not impossible.' Mr Poon conceded his firm had no detailed investment plan but said it would lay its own power cables to selected customers in the start-up stage. He suggested the joint venture company, China Hong Kong Power, could later plug in to Hong Kong Island through Hongkong Electric's power grid, a move that would likely be fiercely resisted by the incumbent firm and require a radically different regulation system. The new entrant could supply cheaper power to Hong Kong by buying electricity from China Power International's power plants, Mr Poon said. 'By leveraging cheaper resources in the mainland, we are confident that our investment will generate a viable return.' Democrat Fred Li Wah-ming welcomed the prospect of new market entrants, saying it would give the government more bargaining power when devising a regulatory regime when the scheme of control in 2008. CLP and Hongkong Electric do not hold franchises, but their profits are regulated by the scheme of control, which allows them to earn a maximum 15 per cent return on their net fixed assets, a system that involves little risk for the firms and passes all costs to customers. Critics highlight the fact that both utilities earn higher returns than any comparable firm in the world, while the companies point to their enviable record of reliability and claim their tariffs are competitive with other major cities. Analysts said the new player faced multiple hurdles such as gaining access to CLP's and Hongkong Electric's privately owned power grids, achieving economies of scale and maintaining a high level of reliability at reasonable tariffs.