City ‘stuck with outdated power deal’

Hong Kong is stuck with outdated rules governing the amount of profit that can be made by power firms, the government’s new energy adviser says.

The total revamp required is impossible before the current deal expires in 2018, despite an interim review next year, said Professor Raymond So Wai-man, a financial expert from Hang Seng Management College who has been appointed chairman of the Energy Advisory Committee.

He warned people not to assume the review would lead to cheaper power bills.

The profits of power firms are tied to the amount of money they invest in fixed assets. The permitted rate of return is set at 9.99 per cent, down from the previous 13.5 per cent before 2009.

So, who replaced Edmund Leung Kwong-ho as chairman, said: “The system is a by-product of the industrial boom in the 60s where the government wanted the firms to boost power supply by rewarding the investment made.

“What the power firm earned under that system was not that much compared to the fast economic growth. But it is clearly too much in the matured economy we have now.”

He said next year’s review of the system by both the government and power firms would not produce the overhaul needed.

“There are going to be some patchwork changes, fixing this and that. But definitely a total revamp is out of question as we have to abide by the contractual spirit of the existing agreement,” he said.

The committee used to be a low-profile advisory body, but that changed when CLP Power (SEHK: 0002) raised its tariffs last year and was criticised by members.

Of the 24 members, 13 were kicked out during the recent committee reshuffle, including one lawmaker. The 11 new members include bankers, an accountant and a chief financial officer of a listed company. There are now no legislators on the committee.

So said the composition reflected the need to focus more on the financial and business aspects of energy suppliers rather than their technical issues. But he warned the public not to have “unrealistic expectations” of the committee, stressing it had no role to adjudicate in any power tariff dispute.

“It is a real challenge to prevent the public from having unrealistic expectations,” he said. “It will be a big problem if we, the energy advisory committee, are mistaken by the public as assuming the role of judge. But I am worried that this is the situation we are facing.”

So said public anger over power tariffs could have its roots in seeing pollution rise along with fuel bills.

He added: “Honestly, the power tariff is not that high in the Asia region, but the public has already formed an impression that it is high and needs to be cut. This is a perception difficult to change.”

chifai.cheung@scmp.com