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XCS(77)2
(g) in line with the schemes of control for all other utility
companies and to facilitate CLP's ability to raise new capital, no dividend restrictions be placed on CLP (the present arrangements are described in paragraph 2(e));
(h) the fuel escalation charge to continue in being, but
before the start of the revised scheme of control, present tariffs be recast so that the base for the charge would be HK$400/ton, instead of the present unrealistic HK$100/ton;
(i) the duration of the Scheme of Control should be from
1st October 1978 (or earlier) to 30th September 1993, with provision for possible re-negotiation during the year ending 30th September 1985.
(E) Comments on CLP's Proposals
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(a) New Generating Company
CLP have suggested a new generating company as a means of attracting new investors. Given that CLP are unwilling to raise any further loans and to make new capital issues, this aim is commendable since any capital raised by the new company would effectively reduce the burden on consumers financing expansion through the Development Fund. A precedent for such an arrangement exists in the formation of PEPCO as a separate company to finance the power station at Tsing Yi. Although the PEPCO arrangement appears to have worked satisfactorily, care would still have to be taken to ensure that the new Scheme of Control clearly provided for:
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(a) the consolidation of profits of the companies involved
for calculating the permitted return;
(b) appropriate procedures for all inter-company tran-
sactions, for example:
(i) sales of electricity;
transfers to the Development Fund;
re-investment of depreciation;
(ii)
(iii)
(iv)
allocation of profits;
(v)
distribution of profits;
(vi) tax implications.
If appropriate administrative details can be worked out, the proposal merits further consideration possibly linked with a generating facility that would also supply Hong Kong Electric Company (an idea referred to in paragraph 51 below).
(b) Permitted Return
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CLP request that their permitted return be increased from 131% of average net fixed assets to an average 15% because:
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