Motion Debate on Reducing Electricity and Gas Tariffs

Madam President, the wording used in Mr Fred LI's original motion is "encourage them to take account of their respective operating conditions and reduce their tariffs or offer concessions to users, thereby alleviating the burden of the public and the commercial and industrial sectors". In an attempt to make the proposals in the motion clearer, Mr NG Leung-sing added the following words before the paragraph to the same effect: "under the premise of safeguarding the rights of investors to operate in compliance with the law and to determine prices". The Liberal Party has heard a few Honourable Members say the same thing earlier. As a matter of fact, we think that the objective of the original motion and the amendment is consistent. Mr Fred LI has never said that the Democratic Party thinks that it is not necessary to protect the right of investors to operate in compliance with the law. However, Mr NG Leung-sing thinks that it would be better if the wording is given greater clarity. I hope the two Honourable Members would support the motion they have proposed and prevent the message as contained in the motion from producing an effect to the regret of other Honourable Members.

Madam President, some Honourable colleagues from the Liberal Party have spoken earlier and they think that under the premise of safeguarding the spirit of contract and business operation, both contracting parties in the business sector nowadays often resort to negotiations. For example, on the collection of rents, at present, many tenants cannot afford to pay the rent, but the lease agreement is still there (of course, Mr LEUNG Yiu-chung may not have encountered such things), some landlords will take the initiative to discuss with their tenants about reducing the rent. It is because collecting part of the rent is much better than not collecting any at all. Things would be much worse if the company concerned closes down or goes bankrupt. Tenants in other businesses, such as in the export business, may encounter difficulties under a lot of circumstances. This is because many of their clients may also have run into difficulties. When this is added to the sluggish economy in other countries, so when their clients get the goods, they may propose to these tenants that they are not going to cancel the order for the next shipment, but they would like to have the price reduced by a little bit. So I think that while it is important to uphold the contractual spirit, it is also vital that negotiations are open in doing business.

On this issue of power supply, the stand of the Liberal Party is that the permitted return should be no cause of complaints because when the permitted returns were laid down in the 1980s, our economy was booming, the economic growth rate was high, the unemployment rate was low, the interest rates were high, the costs of financing were expensive and the inflation rate was also high. At that time, the Government set the rate of permitted return at 13.5%, which is excessively high in the present-day context. Of course, 25 years are a long time and nowadays, especially during the last few years, we are in a deflation. So has the meaning of permitted return changed to guaranteed return?

I think that when the Government conducts the interim review, that is, in the middle of next year, it should really discuss this matter with the two power companies. During the 1980s, the inflation rate was close to 10%, the interest rate stood at about 10% and so when an inflation rate of 8% to 10% was subtracted from the permitted return of 13.5%, the profit in real terms for the two power companies was only 5% to 6%. However, given the prevailing deflation and negative growth, the permitted rate of 13.5% when added to the real profit mentioned earlier, would amount to 18% to 19%. Such a rate of return is extremely high. If we look at the profits made by the two power companies from business subject to profit control, we would find that, the CLP made a profit of $4.7 billion in 1997 and the profit now is $5.4 billion. The HEC made a profit of $4 billion in 1997 and its profit now is $5.6 million. Such are very good rates of return, or it can be said to be fast-growing rates. Such rates of return are quite unattainable from other businesses under the present economic circumstances for business operators or the general public who pay the tariffs.

However, we should of course be fair to the two power companies. The efforts made by the power companies have maintained a stable power supply that we now enjoy and made our economic growth and the safety in our homes possible. We have asked the Government whether it is necessary to maintain a capacity reserve as much as 40% to 50% that has caused us to pay for it now. I think this issue should come under review.

Figures from the Census and Statistics Department show that the increase in real terms of the electricity tariffs over the past 18 years is 30% and it is less than other items such as transport expenses which rose 250% over the past 18 years and rentals which rose 180% and wages which rose 250%. Of course, from the perspective of the two power companies, an increase of 30% over 18 years is not at all substantial. Then why should we review it now? It is because the people are leading a hard life and they do not care whether or not the increase in power tariffs over the past 18 years is on the low side or not. They are concerned that they are having a hard time and that the power companies should do something to help them.

We can look at a comparison of rentals and air-conditioning fees. Mr LEUNG Yiu-chung mentioned earlier that many of the grade B offices would fetch a rental of $7 to $8 per sq ft, but the air-conditioning fees will be in the region of $2.5 to $3 per sq ft. In the past, the rent for premium offices was about $50 to $60 per sq ft and so an air-conditioning fee of $2.5 to $3 would not matter so much. But what we find in the present circumstances is that from shopping malls to most of the small and medium enterprises, factories, restaurants, and so on mentioned by a few Members earlier, the power expenses would account as much as 10% of the total operation costs of these businesses. These companies are not big developers, and they have to make this very substantial expenditure on electricity. At the same time, their profits may be just 1% to 3%. So the high electricity tariffs would indeed impact on them very enormously.

I think the most important point about today's motion is that the two power companies should read carefully the wordings of the motion. In fact, the wording is very mild, especially in the motion proposed by the Democratic Party. It looks as if it is not a motion from the Democratic Party. For example, only words like "encourage" and "operating" are used. In circumstances as these, I hope that the two power companies and the Towngas would give serious thoughts to the motion and I hope that the two Members who have proposed the motion and the amendment would support each other. Thank you, Madam President.