C.S. 166
機密
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(d) depreciation on a straight line basis (although this method has been used simply for calculation of the projections, its adoption would probably be advan- tageous in that it would avoid the need for CLP to keep different sets of accounts. But the implications of dispensing with the CIR rates for Scheme of Control purposes need to be carefully considered);
(e) maximum use of export credit terms;
(f) dividends increasing by 10% per annum;
(g) tax equalisation account introduced as a result of
changing to straight line depreciation;
(h) all interest on capital equipment capitalised;
(i) profits tax at 17%;
(j) overdraft interest at 9%;
(k) increases of 5% annually in fuel costs.
Of these assumptions, (a) the increase in capital costs and (b) the future participation by ESSO and new capital issues are two main areas where the outcome is likely to be more favourable than assumed, for the following reasons:
(a) Increase in capital costs: an 8% increase in capital
(b)
costs implies that on average there will be no gain from an appreciation of the Hong Kong dollar. It also assumes a rate of increase in world prices that is considerably higher than that experienced in the 1960s, but more in line with the average rate of inflation experienced during the first half of this decade. Furthermore, there is no allowance for the effect on prices of the present excess capacity in the generating equipment industry. This is particularly true of the British and Japanese industries, the most likely suppliers of future generating sets. inflation in Hong Kong dollar terms at 8% may be on the high side;
Thus
ESSO's participation and further capital issues: ESSƆ have not yet indicated firmly that they are prepared to make a further investment. Should they decide to, their investment will reduce the amount of the proposed expansion that will have to be financed from the Develop- ment Fund, thus keeping tariffs lower in the earlier years. Further capital issues would have a like effect.
From the financial projections (which, because of the uncertainty about the assumptions, must be treated with reservation) the following important points emerge
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