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‘Clean energy means higher power bills’

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

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