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CLP’s HK$8b Gas Plant May Have Own Profit Control Plan

Government looks at framework for new LNG terminal

SCMP – Cheung Chi-fai – Updated on Jul 01, 2008

The government is considering excluding CLP Power’s proposed liquefied natural gas (LNG) terminal from the new scheme of control regulating its earnings.

The more the company invests in assets regulated by the scheme, the more profit it can earn. The plant on South Soko Island would cost HK$8 billion.

Suggesting the plant would be regulated separately, the environment chief made no mention of the profit factor. Rather, he cited the possibility of other firms using the terminal and bearing a share of its cost.

He said the government was still working out a regulatory framework for the proposed terminal and no decision had been made on whether the project would go ahead.

Keeping the terminal out of the scheme could hold down electricity prices. However, Environment Secretary Edward Yau Tang-wah did not explain how the cost of building the terminal would be reflected in CLP’s tariffs.

He would not offer members of the Legislative Council’s environmental affairs panel any assurance about the percentage return on investment in the terminal CLP would be allowed. The new scheme of control, which takes effect next year, allows the company to make an annual profit of up to 9.99 per cent of the value of its net assets.

“In any business negotiation, it is difficult to make any assurance as it needs to take into account the practical situation,” Mr Yau told the lawmakers.

He said regulating the terminal separately could provide greater transparency and accountability in operations, cost allocation and tariff setting.

CLP Power said that while it agreed that a clear, stable and transparent regulatory framework was important for energy infrastructure, it would seek further clarification from the government about the proposed alternative regulatory arrangement for the terminal.

The company proposed building an LNG terminal after finding the reserves in its gas field off Hainan would begin running out early in the next decade. The finding prompted it to reduce the proportion of electricity generated by its gas-powered plants and using more coal, which has aggravated air pollution.

Mr Yau said consultants hired to conduct due diligence of CLP’s plans had concluded that the Hainan field could provide stable supplies up to 2013. No suitable alternative reserves have been found that CLP can readily tap.

CLP says a terminal would have to come on stream by 2011. The company has signed a preliminary agreement with British firm BG Gas Trading for a 20-year contract for LNG supply.

To save time, Mr Yau said, the statutory planning process would start soon even though no decision has been made about whether to build a terminal. The minister said an LNG terminal should not cater only to CLP’s short-term needs but enable the company, or others, to expand their gas-fired power plants in order to improve air quality.

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