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Power talks urged soon in price outcry

May 10th, 2012
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Eddie Luk HK Standard

Thursday, May 10, 2012

Lawmakers have called for the mid-term review of the scheme of control agreement be advanced after CLP Power warned of a substantial rise in electricity bills.

Democratic Alliance for the Betterment and Progress of Hong Kong lawmaker Gary Chan Hak-kan said yesterday the review should cover both CLP and Hongkong Electric.

It should study the possibility of lowering the utilities’ permitted rate of return and opening the market to other suppliers.

Twenty DAB members staged a rally outside CLP headquarters on Argyle Street in Mong Kok against the company’s move to raise tariffs substantially in the next four years.

“I am outraged and deeply disappointed that CLP management have threatened and intimidated citizens by saying that they plan to raise tariffs sharply,” Chan said.

“The government should negotiate next year’s tariff increase with the two power companies as soon as possible.”

Starry Lee Wai-king said Chief Executive-elect Leung Chun-ying should order his Cabinet to start the review of the agreement with the firms when he takes office on July 1.

Federation of Trade Unions lawmaker Pan Pey-chyou said the government should adjust the suppliers’ permitted rate of return from 9.99percent to around 4 to 5percent.

Meanwhile, Energy Advisory Committee member Ronnie Hui Ka-wah said the government should open up the electricity market in an attempt to lower tariffs.

But Hui expects it might take at least five years to allow other suppliers to use the power companies’ network.

In another protest outside CLP headquarters, about a dozen New Territories Association of Societies members criticized CLP for shrugging off its social responsibility.

On Tuesday, CLP chairman Michael Kadoorie warned the public should brace for higher power bills as the cost of natural gas is forecast to triple.

Kadoorie said the government clean energy drive will force his company to double the volume of natural gas it uses.

He expects fuel costs to increase by around 250percent by 2015, equivalent to a 40percent increase in overall costs to consumers

CLP tariff warning puts C.Y. Leung on the spot over his energy policy

May 10th, 2012
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May 10, 2012 SCMP

Just months after the painful wrangling with the government over the new electricity tariffs, CLP appears to be in a warring mood again. The power company warns that energy bills will be “materially” higher by 2015 due to a 40 per cent increase in fuel costs. Chairman Michael Kadoorie also fired a rare broadside against government’s inefficiency in projects like the arts hub and Kai Tak redevelopment, saying there might be complete darkness in the city if CLP’s management and operation met those standards. Not surprisingly, people felt provoked and even threatened by the remarks. Different theories have been offered as to why CLP chose to make itself an enemy of the public when the next tariff adjustment is not due until the end of the year. Some say it was still aggrieved by the political pressure to cut back this year’s increase from the proposed 9.2 per cent to 4.9 per cent. Others believed the power giant was acting tough in a political gesture to incoming chief executive Leung Chun-ying, and possibly a new environment minister in charge of the energy portfolio.

Objectively speaking, CLP is just being frank about the difficult years ahead. It is true that clean energy comes at a price. Under the user-pays principle, customers should be prepared to pay more for a better environment. But it is not going to help if the public felt they were intimidated to pay more. A provocative approach is hardly the right way forward.

Arguably, a listed company like CLP is duty bound to defend shareholders’ interest and try to maximise profits. Under the so-called scheme of control, which runs until 2018, the two power companies have been guaranteed a near 10 per cent rate of return annually on their investments until 2018. It seems too sweet a deal in a society where calls for government monitoring and intervention in public utilities have become increasingly vocal. The scheme may have served Hong Kong well in the past when there was a need to increase energy supply to meet a booming economy, but a guaranteed-profit agreement should be history now. A better mechanism is needed to ensure public utilities are commercially viable while socially responsible at the same time.

The public outcry shows any tariff adjustment should be handled with great sensitivity, especially when the two power suppliers are protected by a profit scheme that puts consumers in a vulnerable situation. How to tackle the problem will be a major test for the new chief executive. So far Leung has been vague about his policy on the energy market. He should not shy away from adopting a tougher stance if needed. Until the scheme of control can be abolished, there should be better ways to handle the annual adjustment.

The controversy has renewed momentum for a thorough debate in the community on the way forward. This includes whether the market should be opened up to new players to enhance competition.

CLP’s price scare is just so much gas
Fast-growing supply of cheaper LNG puts paid to claim that higher fuel costs are driving up bills
JAKE’S VIEW
Jake van der Kamp
May 10, 2012

“The era of cheap gas is over, [CLP chief executive Andrew] Brandler said.
SCMP, May 9

I have time for China Light (the old name still rings better than CLP). It runs an excellent power service, it has kept its tariffs well below those of Hongkong Electric (SEHK: 0006) and I think its people are genuine in their commitment to the community.

I also think it has unfairly been getting the short end of the stick from the government in the last few years in matters ranging from pollution control to independence of operations and, most significantly, in pressure recently to set tariffs at levels below those earlier agreed with the authorities.

In fact, it seems to me that our government wants a dominant power supplier in Hong Kong more Chinese in origin than China Light with its founding Kadoorie family. Our bureaucrats may tell me I’m wrong about this, but it’s my guess that they are waiting for a chance to give the franchise to a mainland power supplier … and won’t negotiate the terms too strenuously.

Thus I can fully understand why the firm should be busy diversifying itself abroad as much as possible, even to the regrettable extent of changing its name.

But at the same time I have to say that the way Andrew Brandler (CLP’s CEO) and his colleagues were harrumphing on Tuesday about higher fuel prices driving up power bills amounts to just so much scaremongering, and they ought to know it.

Look at the chart of the difference that has now opened up in the United States between oil and natural gas prices. It is unprecedented. The new technology of fracking – extracting gas under pressure from graphite – is now rapidly changing the dynamics of energy pricing.

And before anyone protests that we are not located in the US, let me point out that only two days ago the Singapore government’s investment vehicle, Temasek, took a 19 per cent state in Cheniere Energy, a Texas-based gas distributor. The gas will now flow the other way. It’s coming to Asia.

It inevitably would do so anyway. The number of liquefied natural gas terminals built across the world is rising rapidly and traditional producers of gas are already finding themselves under pressure to reduce their prices in line with the revolution in gas extraction.

In fact, Brandler may soon find reason to congratulate himself that China Light’s proposal for an LNG receiving terminal on the Soko Islands was rejected a few years ago. The firm did not after all find itself signing a 20-year supply deal with Malaysian producers on terms that would now be very costly to escape.

The spot price for gas increasingly determines contract prices these days. It has become a buyer’s market. Those costly long-term supply contracts with China are now unlikely to prove either so costly or so long-term as the firm’s scaremongering would lead us to believe.

Bear in mind that gas-powered generation plants are not only much cleaner but much more fuel efficient than coal-burning plants. Instead of grinding the coal to burn the coal dust to make the steam to turn the turbine to crank the generator, you skip the grinder and the furnace and burn the fuel directly in the turbine. This can raise the energy conversion ratio of fuel to electricity to well over 50 per cent, much better than any coal plant can do.

But coal prices now also show signs of crumbling under the assault of the abundance of gas flowing from the new wells. Put it all together and what you have is a suddenly brightened picture for power-generation firms the world over, just when it seemed gloom would prevail because of heightened fears about nuclear power.

There is no way that Brandler could be unaware of these developments and, if he claims so, he should step down as not being up to speed on his job.

I say it again. It’s just scaremongering to talk doom talk on gas prices with the fracking revolution under way.

jake.vanderkamp@scmp.com

CLP’s price scare is just so much gas

May 9th, 2012
by Editor.
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Fast-growing supply of cheaper LNG puts paid to claim that higher fuel costs are driving up bills
JAKE’S VIEW
Jake van der Kamp
May 10, 2012

“The era of cheap gas is over, [CLP chief executive Andrew] Brandler said.
SCMP, May 9

I have time for China Light (the old name still rings better than CLP). It runs an excellent power service, it has kept its tariffs well below those of Hongkong Electric (SEHK: 0006) and I think its people are genuine in their commitment to the community.

I also think it has unfairly been getting the short end of the stick from the government in the last few years in matters ranging from pollution control to independence of operations and, most significantly, in pressure recently to set tariffs at levels below those earlier agreed with the authorities.

In fact, it seems to me that our government wants a dominant power supplier in Hong Kong more Chinese in origin than China Light with its founding Kadoorie family. Our bureaucrats may tell me I’m wrong about this, but it’s my guess that they are waiting for a chance to give the franchise to a mainland power supplier … and won’t negotiate the terms too strenuously.

Thus I can fully understand why the firm should be busy diversifying itself abroad as much as possible, even to the regrettable extent of changing its name.

But at the same time I have to say that the way Andrew Brandler (CLP’s CEO) and his colleagues were harrumphing on Tuesday about higher fuel prices driving up power bills amounts to just so much scaremongering, and they ought to know it.

Look at the chart of the difference that has now opened up in the United States between oil and natural gas prices. It is unprecedented. The new technology of fracking – extracting gas under pressure from graphite – is now rapidly changing the dynamics of energy pricing.

And before anyone protests that we are not located in the US, let me point out that only two days ago the Singapore government’s investment vehicle, Temasek, took a 19 per cent state in Cheniere Energy, a Texas-based gas distributor. The gas will now flow the other way. It’s coming to Asia.

It inevitably would do so anyway. The number of liquefied natural gas terminals built across the world is rising rapidly and traditional producers of gas are already finding themselves under pressure to reduce their prices in line with the revolution in gas extraction.

In fact, Brandler may soon find reason to congratulate himself that China Light’s proposal for an LNG receiving terminal on the Soko Islands was rejected a few years ago. The firm did not after all find itself signing a 20-year supply deal with Malaysian producers on terms that would now be very costly to escape.

The spot price for gas increasingly determines contract prices these days. It has become a buyer’s market. Those costly long-term supply contracts with China are now unlikely to prove either so costly or so long-term as the firm’s scaremongering would lead us to believe.

Bear in mind that gas-powered generation plants are not only much cleaner but much more fuel efficient than coal-burning plants. Instead of grinding the coal to burn the coal dust to make the steam to turn the turbine to crank the generator, you skip the grinder and the furnace and burn the fuel directly in the turbine. This can raise the energy conversion ratio of fuel to electricity to well over 50 per cent, much better than any coal plant can do.

But coal prices now also show signs of crumbling under the assault of the abundance of gas flowing from the new wells. Put it all together and what you have is a suddenly brightened picture for power-generation firms the world over, just when it seemed gloom would prevail because of heightened fears about nuclear power.

There is no way that Brandler could be unaware of these developments and, if he claims so, he should step down as not being up to speed on his job.

I say it again. It’s just scaremongering to talk doom talk on gas prices with the fracking revolution under way.

jake.vanderkamp@scmp.com

Power shocker

May 9th, 2012
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Clear the Air says: this is what you get when you have monopolies and inept ENB officials signing over-generous Scheme of Control agreements. Open up the power generation sector to open bidding so there is competition and they will eat their words and their fat margins.

HK Standard

Eddie Luk

Wednesday, May 09, 2012

Residents of Kowloon and the New Territories should brace to pay up to 40 percent more for power over the next four years.

That’s the shock warning from CLP Power chairman Michael Kadoorie who says the government’s clean energy drive will force his company to double the volume of natural gas it uses – just as the price of gas is forecast to triple.

“To implement these policy choices will require CLP to use twice the current volumes of natural gas,” he said at the CLP annual meeting yesterday.

“And the cost of gas will be three times more than the current gas supply, which was secured 20 years ago.

“As a result, we estimate that, by 2015, fuel costs alone will increase by around 250 percent from current levels.

“This is the equivalent of about a 40 percent increase in overall costs to the consumers. This will require regular and substantial tariff increases over the next four years.”

CLP chief executive Andrew Brandler said the era of cheap gas is over because the new contract will be three times the price of the existing one.

The forecast was contained in a speech delivered by the company’s vice chairman, William Elkin Mocatta, on behalf of Kadoorie, who has lost his voice.

(CTA: It is believe d the loss was not reported to police and no reward was offered for its return).

However, Kadoorie’s tough talk was seen as a bargaining strategy with the government.

Democratic Party lawmaker Fred Li Wah-ming described the comments as threats and said they were irresponsible.

“Kadoorie’s remarks suggest CLP has taken a strong stance to fight for a tariff i

ncrease as they expect Chief Executive-designate Leung Chun-ying to adopt a tough and decisive approach in handling future tariff hikes,” Li said.

Federation of Trade Unions lawmaker Wong Kwok-kin accused CLP of trying to intimidate the public, saying the government must act to open the market to competition.

“CLP’s management only dares make such arrogant remarks since it and Hongkong Electric monopolize the power market,” he said.

CLP reduced its proposed price rise for this year from 9.2 percent to 4.7 percent following a public outcry. Kadoorie said the next government will have to choose between a stable electricity supply and cost.

He criticized the government for interfering with the market by entering into an understanding in 2008 with the mainland’s National Energy Administration on Hong Kong’s future energy supply, including long-term supplies from the mainland.

Kadoorie said after CLP expressed the need to raise tariffs last year, calls mounted for the government and the Legislative Council to strengthen controls on the electricity industry.

“In recent times, in the context of the tariff increase, there have been calls for increased government and legislative involvement, intervention and control over Hong Kong’s electricity industry,” he said.

“I do not doubt the sincerity of those voices. What I would challenge are the choices being made regarding those matters which government should do and those which are best left to the private sector.”

Had power supply been handled in the same way as the government tackled the West Kowloon and Kai Tak projects, the power supply situation in Hong Kong today would be in a mess, he said.

“If the speed and efficiency of decision-making and implementation by CLP in managing and operating the electricity supply system for Kowloon and the New Territories had matched those standards, I would be speaking to you today in darkness,” he said.

Larry Chow Chuen-ho, director of the Hong Kong Energy Studies Centre at Baptist University, said CLP gets natural gas from the Yacheng field near Hainan at a lower price because the deal was signed about 20 years ago.

Chow said since CLP will have to sign new contracts with mainland suppliers as the field is drying up, it is expected the cost will increase sharply and this will be transferred to consumers. (CTA: why – why can’t they lower their greedy margins – why do they have no competition ?)

William Chung Siu-wai, head of the Energy and Environmental Policy Research Unit at Hong Kong City University, said the government should consider opening the electricity market to allow mainland suppliers to use CLP and Hongkong Electric networks to serve local consumers.

‘Clean energy means higher power bills’

May 9th, 2012
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Government’s energy policy makes higher power prices inevitable, warns CLP chief Michael Kadoorie, firing a shot across bows of incoming Leung administration
Denise Tsang
May 09, 2012

The government’s “clean energy” policy will mean higher power bills for consumers, the chief of Hong Kong’s biggest power company, Michael Kadoorie, said yesterday.

In a rare tycoon broadside against the government, Kadoorie, chairman of CLP, cautioned the new administration not to meddle in the sector and said the “inevitable” outcome of an energy policy based on importing cleaner but more expensive gas from the mainland would be higher power bills.

The Hong Kong government agreed with Beijing in 2008 to source “clean energy” gas for the city’s power supply from the mainland. That means CLP now has to buy gas at a price three times more expensive than the supply it secured 20 years ago through a long-term contract. However, attempts by CLP to raise tariffs to offset its higher costs have been stymied by the government, which is sensitive to public pressure over power bills.

Ronnie Hui Ka-wah, a member of the government’s energy advisory committee, rejected Kadoorie’s criticism, saying the government had done well as a regulator and in safeguarding public interests.

Lawmaker Wong Kwok-kin said CLP’s “threat” to raise tariffs meant the government must consider importing electricity from the mainland.

Kadoorie, in a swipe at perceived government meddling, said the chief executive-elect, Leung Chun-ying, would face “a challenge” in defining what the government should do and what was best left to the private sector.

“On those few clear days when I can look across the harbour from my office in Central, I see the West Kowloon reclamation and the site of the old Kai Tak airport. Both have been lying vacant and unused for many years,” Kadoorie said, in a statement read by CLP’s vice-chairman, William Mocatta.

“If the speed and efficiency of decision-making and implementation by CLP in managing and operating the electricity supply system for Kowloon and the New Territories had matched those standards, I would be speaking to you today in darkness.”

Kadoorie – who said he was like “the overwhelming majority of Hong Kong people who did not vote” for the city’s new chief executive – said his only interest in the political process was that it “would lead to confident, capable and committed leadership to carry our society forward in the years to come.”

Leung’s office declined to comment.

CLP, the larger of Hong Kong’s two power suppliers, warned after its annual shareholders’ meeting yesterday that tariffs would be “materially” higher by 2015 on the back of a roughly 40 per cent rise in fuel costs.

CLP’s chief executive, Andrew Brandler, said the company would have to use twice as much gas to meet the government’s 2015 emission reduction target. “The era of cheap gas is over,” Brandler said.

The 2015 target requires power suppliers to cut emissions by up to 64 per cent below 2010 levels. The government has proposed changing its reliance on different sources of electricity to a mix of 50 per cent nuclear, 40 per cent gas and 10 per cent coal by 2020. Coal, nuclear and gas currently each account for a third of CLP’s electricity generation.

CLP was forced to lower its proposed tariff increases to 4.9 per cent from the previously proposed 9.2 per cent, on January 1 after lengthy discussions with the government in the last two weeks of December.

Architect Wong Kam-sing, who is the front runner to be the new environment minister, said he and his officials would negotiate with CLP and Hongkong Electric (SEHK: 0006), over carbon reductions.

Lam Pun-lee, a former Polytechnic University professor who has closely followed the Hong Kong power sector for more than a decade, said the government was being unreasonable in suppressing power firms from lifting tariffs. He said CLP tariffs were raised in accordance with the scheme of control, a 10-year agreement between the government and the power companies that is due to mature in 2018.

This allows CLP and Hongkong Electric to earn a 9.99 per cent return annually on their average net fixed assets and pass fuel costs on to end users.

CLP Power (SEHK: 0002) has teamed up with the state-owned China Southern Power Grid in negotiating to buy a 60 per cent stake in the power generation company Capco, from ExxonMobil Energy of the US. CLP Power already owns 40 per cent of Capco, which in turn owns three power plants in Tuen Mun and Lantau.

Additional reporting by Cheung Chi-fai

denise.tsang@scmp.com

CLP, China Grid ‘set to buy Exxon’s Castle Peak stake’

Mar 17th, 2012
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SCMP

Sale would help US oil giant concentrate on core business while assuring CLP of stable supplies of Chinese natural gas for HK power plants
Reuters 
Mar 17, 2012

Regional power utility CLP Holdings (SEHK: 0002) and China Southern Power Grid are likely to pay about US$2.8 billion for a 60 per cent stake held by ExxonMobil in a Hong Kong power venture as the oil major seeks to divest its non-core assets.

By raising its existing holding in Castle Peak Power in partnership with one of China’s two main power grid companies, CLP would be able to secure Chinese natural gas for its Hong Kong plants, analysts say.

Hong Kong-based CLP, which owns and operates power plants from China to Australia and Thailand to India, said late on Thursday that it and state-owned China Southern were in talks to buy ExxonMobil’s stake in Castle Peak.

An industry source familiar with the situation said the stake would “be worth at least several billion (US) dollars”, adding ExxonMobil had long sought to sell the asset to focus on its core business of oil and gas.

The source asked not to be identified because he was not allowed to make public comments on the talks.

CLP, which is controlled by the wealthy Kadoorie family and supplies electricity to users in Kowloon and the New Territories, said there was no certainty an agreement would be reached. It gave no further details.

CLP already holds 40 per cent of Castle Peak, which owns three coal-fired power stations with generation capacity of 6,908 megawatts – part of which can burn gas as a back-up fuel.

RBS analyst Jenny Cosgrove said ExxonMobil could fetch up to HK$22 billion from its stake in Castle Peak, which enjoys an annual return of 9.99 per cent on its net fixed assets until 2018 under a programme known as Scheme of Control.

Citigroup analyst Pierre Lau said CLP was expected to pay between HK$11 billion to HK$13.7 billion if it and China Southern were to evenly split the 60 per cent stake.

The deal, if it goes through, would also become the first major acquisition by China Southern since its establishment in 2002.

China’s cash-rich state power groups have been scooping up bargains, with leading distributor State Grid Corp establishing a presence in the Philippines, Brazil and Portugal.

A joint purchase by CLP and China Southern would allow further integration of power grids in Hong Kong and Guangdong, analysts say. China Southern services Guangdong, Guangxi, Guizhou, Yunnan and Hainan.

The value of ExxonMobil’s stake carries a price/book ratio of 1.7 times, Cosgrove said in a note. Assuming an enterprise value of about HK$40 billion for Castle Peak, the estimated price tag of the ExxonMobil stake implied “a very reasonable” valuation of HK$0.74 million per MW, she added.

CLP had HK$3.2 billion in cash and HK$65 billion of total debt at end of last year, with debt to total capital at 45 per cent.

Legco votes down tariff motion

Feb 9th, 2012
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08-02-2012
The Legislative Council has voted down a motion to force the disclosure of details of the two power companies’ tariff increase proposals, by invoking the Powers and Privileges Ordinance.

CLP Power and Hong Kong Electric have provided a Legco panel with part of the information, but asked for some data to be kept confidential.

The Environment Secretary, Edward Yau, said some sensitive information should not be divulged, as it could affect the firms’ bargaining power, leading to potentially higher costs, and higher tariffs.

Why tariff rise was questioned

Jan 5th, 2012
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Arrogant reply from ENB – an excessively generous binding contract was signed by HK Govt with CLP which lies at the root of this problem.

South China Morning Post

Why tariff rise was questioned

I write in response to the letters from Y. K. Leung (“Tariff rises would power greener city”, December 31) and Thomas Gebauer (“Puzzled by environment chief’s stand”, January 1) on the electricity tariff.

Electricity is a basic necessity to Hong Kong people. A safe and reliable supply of electricity at a reasonable price is vital to our economy.

As power generation is the single largest source of air pollution in Hong Kong, we have taken pains in recent years to tackle it, resulting in a 71 per cent reduction in sulphur dioxide emissions in 2010 compared to 2007. That explains the multiple goals of the government’s energy policy, which centre on safety, reliability, affordability and the minimisation of the environmental impact.

Hong Kong is in the process of shifting to the use of cleaner fuel, including natural gas, for power generation. This means the fuel cost element of electricity tariffs will inevitably increase. However, the electricity tariff review this year differs from previous years in that we could not come to terms with the power companies on the extent of the tariff rise.

In the case of CLP Power (SEHK: 0002), our querying of its double-digit percentage rise in operating costs and premature capital investment, and emphasis on the need to moderate a tariff rise through deployment of the tariff stabilisation fund, were echoed by the community and resulted in CLP’s response: it lowered the increase to 4.9 per cent.

As we work towards cleaner air by improving emission control and increasing the use of cleaner fuel, there is a continued role for the government to exercise due diligence on the power companies’ expenditure and the resulting tariff adjustment. And that is what we have been doing in the past as well as assessing the 2012 adjustment. This is also what the community expects us to do, isn’t it?

Vyora Yau, principal assistant secretary for the environment (financial monitoring), Environment Bureau

No easy escape from the powers that be

Dec 23rd, 2011
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South China Morning Post – 23 Dec. 2011

Everyone is so upset at the greed of the power companies that even chief executive candidate Henry Tang Ying-yen has jumped on the bandwagon.

The former chief secretary yesterday denounced the power supply market as uncompetitive and called for it to be opened up. That’s all very well, but how? We have created a duopoly monster that would be difficult, if not impossible, to slay without incurring serious costs to ourselves.

After a public outcry over the new tariff rises, Hongkong Electric (SEHK: 0006) and CLP Power (SEHK: 0002) made token concessions. Subsidised electricity, it seems, is an entitlement in Hong Kong. In reality, it would be better if the companies had raised them to earn the full profit of 9.99 per cent of net fixed assets, as capped by the so-called scheme of control.

That way, the bills would become so expensive that people would be forced to cut back. That in turn would help enhance energy efficiency and cause less pollution. Alas, everyone is fixated on affordable tariffs so that we can waste as much as ever.

We get the electricity market we deserve. Decades ago, we made a Faustian bargain in the form of the present scheme to get steady and reliable supply, continuous investment and facility upgrades. The result was that the companies were guaranteed double-digit profits tied to their investment in fixed assets.

In the most recent negotiations over the scheme in 2008, officials managed to cut the profit cap to single digits – well, sort of – 9.99 per cent. Because of the scheme, the companies have become so vertically integrated – owning everything from generation and distribution to supply and services – it would be tough to break them up.

Even if we managed to, we would have to compensate them again for their investments, which we have paid for already. Tang may well be right. But let’s see the devilish details before we get too excited by his headline-grabbing sound bites.

alex.lo@scmp.com

Pull plug on power duopoly, Tang says

Dec 23rd, 2011
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South China Morning Post –

Clear the Air says:

Tang was extremely silent (without a speech writer) whilst being number 2 in the Administration in his last day job.

Now he wants the number one job he is more vocal which suggests he was incompetent in his former job or basically had no say, so why would the public now believe his intentions ?

The Government negotiated and agreed  binding contracts with the power companies under the Scheme of Control. The Government of which Tang was number 2, was at fault.

The contract was excessive and flawed and too beneficial to the power companies under its ‘build more, get more return’ policy.

The contracts were, however and remain, legal binding documents between the Government and the two suppliers.

It is puerile of Government  to whine when the suppliers seek to obtain what they are entitled to.

In the private business world, the person or team approving and signing such a lopsided contract would have been long since fired.

Demands for opening up of market supported by chief executive candidate, who points to success of telecom break-up as outcry over price rises grows
Peter So and Cheung Chi-fai 
Dec 23, 2011

Chief executive candidate Henry Tang Ying-yen added his voice yesterday to the public clamour against electricity price rises, calling for the power duopoly to be opened to competition.

“In the long run, Hong Kong should introduce competition [into the market],” Tang said during a radio interview.

“We could consider breaking the power supply into two different markets, for generation and distribution. On this, we have the example of the opening up of the telecom market.”

Asked again about the electricity tariff rises at a public forum organised by the Liberal Party, Tang said: “It is the responsibility of the next administration to come up with a better agreement [with power companies] so that the tariff can be more reasonable.”

The government opened up the telecommunications market in 1995 and paid Hong Kong Telecom HK$6.7 billion to terminate its exclusive licence in 1998, eight years earlier than scheduled. That change allowed more operators to enter the market through the third-party access rights to the telecom giant’s exchanges, causing the cost of international calls to plummet.

But whether breaking up the power monopoly, controlled by Hongkong Electric (SEHK: 0006) and CLP Power (SEHK: 0002), would go as smoothly seems unlikely, as studies have concluded.

The two utilities control the supply, distribution and services, leaving no niches for newcomers to the business. If they are paid compensation, the Hong Kong taxpayer would have to pick up the tab. Questions have been raised about how to regulate a power supplier operating from the mainland and whether, and how much, the power grid owner should be paid in compensation.

There was a failed attempt in 2008 when China Power International (SEHK: 2380) vowed to break the duopoly and to supply power to border areas; it dropped its plan because the government did not want to duplicate the supply network.

Officials will have to confront the issue as they have pledged to notify the power firms by the end of 2015 if they decide the market is ready for opening up after 2018, when the existing regulatory regime expires.

Then both sides must discuss the financial arrangements relating to assets and investment left redundant by opening up the market. Issues related to the future regulatory framework must also be decided.

Tang’s rival Leung Chung-ying said further study was needed.

“The most important [thing] is that the operator will have a reasonable return, and offer quality services at prices affordable to the public and businesses,” he said yesterday after the same forum.

A spokesman for the Environment Bureau yesterday said it was studying issues involved in reforming the market. The government has reportedly already appointed a consultant to study a range of issues, including how to introduce competition in the local market.

Dr William Yu Yuen-ping, the head of WWF Hong Kong’s climate programme, said the city could start tackling the issue by strengthening the interconnections between the two firms to minimise their reserve generating capacity, which was excessive.

Dr Billy Mak Shui-choi, of Baptist University’s department of finance, said any opening up should be cost-effective and not sacrifice the reliability of supply. He urged officials to learn the lessons of the power markets on the mainland and California, where either excessive regulation or fully liberalised markets have been cited as a cause of blackouts.
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