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Power companies learn how little contracts mean to government

South China Morning Post – Dec. 20, 2011

When is a contract not a contract? When it is signed with the Hong Kong government, if the experience of the power companies is anything to go by.

The request by the power companies to raise electricity tariffs is a golden opportunity for our unpopular government. It can portray itself as taking the side of the “people” against the “greedy” power companies. It’s true the power companies did extremely well out of the previous scheme of control. It permitted an annual rate of return on depreciated net assets of 13.5 to 15 per cent – double the rates of markets such as Australia and Britain and making Hong Kong one of the most profitable power markets in the world.

The new scheme of control, which came into effect in 2009, permits a return of 9.99 per cent on assets using conventional resources and 11 per cent on assets using renewable energy assets, together with financial incentives for exceeding emission targets or fines for missing them.

We may not like the scheme. The government talked of opening up the market to competitive tender but opted to stick with the present arrangements. Any tariff increase over 5 per cent is supposed to be approved by the Executive Council. But this spat was always a problem waiting to happen. The power companies have invested in scrubbers to clean up their emissions. The government has agreed on a formula with the power companies. The fact that people don’t like paying more for electricity is not by itself a valid reason for not raising tariffs. If the government can show that the power companies are fudging their figures, that’s a different matter – but they haven’t done that. Instead we have this gutless posturing because it doesn’t have the nerve to say that there is an agreed formula for adjusting rates.

The posturing from Edward Yau Tang-wah, the secretary for the environment, is even more stomach churning. This is a man who has steadfastly ignored the evidence that Hong Kong’s noxious roadside pollution is harming Hong Kong’s public health. But as soon as he gets an opportunity to gain some cheap publicity, he emerges from his bunker. Bravo. What sort of message does this send to anyone contemplating signing a contract with the government?

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