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Power giant talks tough

Energy giant CLP is ready to fight any “unfair” move to rewrite the deal that governs its profits, but it is also pointing to hikes in electricity over the next few years.

Kelly Ip and Victor Cheung

Tuesday, February 26, 2013

Energy giant CLP is ready to fight any “unfair” move to rewrite the deal that governs its profits, but it is also pointing to hikes in electricity over the next few years.

The line was drawn yesterday as the electric company reported an 11 percent drop in earnings last year to HK$8.31 billion.

It comes ahead of a interim review of the pact that CLP has with the government – the scheme of control – that allows it a maximum profit of 9.99 percent.

CLP will approach discussions “in a constructive and open-minded spirit,” a statement read. But it “will not be ready to accept amendments which are unfair or one-sided and which run counter to the fundamental character of the SoC agreement as a binding contract.”

There have been calls for government officials to review the maximum profit after the power company raised its tariff by 5.3 percent from January 1 this year. On that, CLP chairman Michael Kadoorie blamed an increase in the cost of natural gas plus a need to use more of it for clean energy production. That includes hitting an official target to cut emissions by reducing the use of coal for generating electricity.

“Fuel costs alone will increase by around 250 percent between 2011 and 2015 because CLP will be required to use twice the current volume of natural gas,” Kadoorie said.

“The cost of this gas will be three times the price of gas secured 20 years ago.”

So Kadoorie hopes officials will extend the scheme of control pact by five years beyond 2018 so that the CLP can continue “to invest in the future.”

The vice chairwoman of CLP Power Hong Kong, Betty Yuen So Siu-mai, said the group sees tariffs increasing from 30 to 40 percent.

“We will try to delay the tariff hikes as much as we can,” she said, “but the upward direction has little room for change.”

She did not directly respond to questions on whether CLP is “threatening” the government ahead of any talks for extending the agreement, but she did remark that there is “sufficient time” for both sides to forge a deal and ensure stability in the supply of power. She also denied that CLP would consider pulling out of Hong Kong if the review of the scheme of control does not go as the company wants.

That it has already stated it is ready to buy Exxon Mobil’s 60 percent holding in the Castle Peak power plant “shows CLP’s commitment to Hong Kong,” she said. CLP currently owns 40 percent of the plant.

And “CLP has been serving Hong Kong for the past 111 years,” Yuen added.

But Secretary for the Environment Wong Kam-sing was lukewarm to the idea of talking any time soon on extending the SoC scheme, saying it is too soon.

“Attention should be focused on the mid-term review of the scheme of control and the possibility to combine different kinds of energy sources,” he said.

Wong also said fuel costs in the international market have little bearing on the consumer price index in Hong Kong, though the administration would have to think on it some more if people at the grassroots were affected.

New People’s Party and Executive Council member Regina Ip Lau Suk- yee thinks the fact CLP has pointed to a need to raise tariffs is a negotiating tactic.

“I believe CLP understands they will face criticism from society if they are to raise tariffs,” she said.

Larry Chow Chuen-ho, director of the Hong Kong Energy Studies Centre at Baptist University, remarked: “I don’t think the maximum profit of 9.9 percent can be amended easily.”

And in a Legislative Council panel meeting, the administration suggested that a 3.6 percent tariff increase by Towngas from April 1 could be viewed as “moderate.”

It is estimated that about 78 percent of Towngas domestic customers will pay no more than an extra HK$10 a month, and charges for low-income groups such as the elderly, disabled and single-parent families will remain unchanged.

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