Taking over power companies' assets is among the options available in the event of a collapse in talks over the rules governing their operations beyond 2008, energy advisers to the government say. The plans, though never made public, are thought to range from offering a temporary extension of the existing framework to taking over their assets by legal means. However, it is widely believed the two sides will eventually strike a deal if the difference between what each proposes as an appropriate rate of return is only small. The government proposed a new regulatory regime for the sector last week. It involves cutting the power firms' permitted rate of return from the present 13.5 per cent of net asset value to between 9 and 10 per cent after 2008. The reduction could lead to a cut in electricity tariffs of 10 to 20 per cent, the government says. CLP Power and Hongkong Electric oppose the suggested adjustment to the profits cap. Larry Chow Chuen-ho, a member of the Energy Advisory Committee and director of the Energy Studies Centre at Baptist University, said the government had fallback plans in case talks broke down. But these plans might not be desirable for either side. 'An extension of the existing regime, even for a short time, will create uncertainties for long-term energy investment, while a takeover would be a serious blow to Hong Kong's business environment,' he said. Unlike the law regulating franchised bus operators, no takeover in the public interest is allowed under the power companies' scheme of control, and any such action would require legislation. Dr Chow said officials had told the committee an extension was not a preferred option but had not commented on other contingency plans. Another committee member, Ng Cho-nam, said a deal between the government and power companies seemed more likely than maintaining the status quo or a radical takeover of assets if the talks collapsed. The two power companies were operated and owned by prominent families with extensive business interests in the city, and it was unlikely they would scupper talks and terminate their business, he said. Democratic Party legislator Fred Li Wah-ming said a collapse of the talks was unlikely. 'I don't believe the power companies would withdraw from Hong Kong and say they do not want to play, even though they seem negative about the new document. They are making billions in profit every year. How can they quit? 'If there is a deadlock, the final trump card the government has is taking the matter to the Legislative Council. Power companies will not want to see that happening, because once it gets to Legco ... it will get complicated.'