XN000022-1979-02-14 — Page 6

WEDNESDAY, FEBRUARY 14, 1979

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+NOTWITHSTANDING THE RELATIVELY HIGH COST OF OPERATING THE DESALTER, I AM CONFIDENT THAT THIS COMMUNITY IN GENERAL, AND TRADE CONSUMERS IN PARTICULAR (AS THEY ENJOY A 24-HOUR SUPPLY DURING WATER RESTRICTIONS), WOULD MUCH PREFER TO PAY MORE THAN SUFFER THE FURTHER RESTRICTIONS THAT WOULD OTHERWISE HAVE HAD TO BE IMPOSED HAD THE DESALTER NOT BEEN BROUGHT FULLY INTO OPERATION.

+NOR CAN I AGREE THAT THE COST OF THE DESALTER BE LEFT OUT OF THE WATERWORKS ACCOUNTS AND CHARGED TO GENERAL REVENUE UNDER A SEPARATE ACCOUNT. +

THIS, MR. HADDON-CAVE STRESSED, WOULD NOT MAKE SENSE BECAUSE THE DESALTER IS PART OF THE TOTAL FIXED ASSETS OF WATER UNDERTAK ING.

ON DEPRECIATION POLICY, THE FINANCIAL SECRETARY SAID THE RATES AT WHICH WE DEPRECIATE THE WATER UNDERTAKING'S FIXED ASSETS DEPENDS ON A VIEW BEING TAKEN OVER THE LIFE EXPECTANCY OF INDIVIDUAL ASSETS, WHICH EXCLUDE THE VALUE OF TRACTS OF LAND REQUIRED FOR STORAGE AND CATCHMENT AREAS, AND I CAN GIVE HONOURABLE MEMBERS AN ASSURANCE THAT A REASONABLE VIEW HAS BEEN TAKEN.

+OVERALL, THE ANNUAL DEPRECIATION CHARGES AMOUNT TO LESS THAN TWO PER CENT OF THE TOTAL COST OF FIXED ASSETS AND HONOURABLE MEMBERS WILL WISH TO NOTE THAT WE DEPRECIATE ON THE BASIS OF HISTORICAL RATHER THAN CURRENT COSTS.

+SO THERE IS NO QUESTION OF DEPRECIATION CHARGES IN THE FORECAST PERIOD HAVING BEEN INFLATED, AND I CAN ALSO SAY THAT EVEN IF THE DEPRECIATION CHARGES FOR THE DESALTER WERE TAKEN OUT OF THE WATERWORKS ACCOUNTS, THE WATER UNDERTAKING WOULD STILL BE LEFT WITH A VERY SUBSTANTIAL DEFICIT AT THE END OF THE FORECAST PERIOD IF WATER CHARGES WERE NOT REVISED.

ON PRICING POLICY, MR. HADDON-CAVE SAID HE HAD RECEIVED REPRESENTATIONS SUGGESTING THAT THE NEW PRICE STRUCTURE WOULD RESULT IN TRADE CONSUMERS SUBSIDISING DOMESTIC CONSUMERS BECAUSE TRADE CONSUMERS WILL BE PAYING MORE THAN THE ESTIMATED COST OF PRODUCTION.

+THIS BELIEF IS SHARED BY MR. JAMES WU WHEN HE SAID THAT 'TRADE AND INDUSTRY, USING ONLY ABOUT 30 PER CENT OF TOTAL WATER CONSUMPTION, WOULD BE REQUIRED TO PAY 73 PER CENT OF THE TOTAL COST FOR WATER SUPPLY IN HONG KONG AS A WHOLE.'

+THIS IS NOT SO AND I DO NOT UNDERSTAND HOW MR. WU ARRIVED AT HIS FIGURES. AS I HAVE SAID WHEN MOVING THE MOTION, THE PROPOSED CHARGE OF $5.50 PER UNIT FOR TRADE SUPPLIES REPRESENTS THE DIFFERENCE BETWEEN THE ESTIMATED WEIGHTED AVERAGE PRODUCTION COST AND THE ESTIMATED WEIGHTED AVERAGE CONTRIBUTION FROM RATES OVER THE FOUR YEARS 1979-80 TO 1982-83.

+THUS, THE PROPOSED CHARGE FOR TRADE SUPPLIES IS LESS THAN THE ESTIMATED COST OF PRODUCTION. MOREOVER, THE PRODUCTION COST FOR DOMESTIC SUPPLIES IS FULLY COVERED BY THE CONTRIBUTION FROM RATES THE CONTRIBUTION FROM GENERAL REVENUE IN RESPECT OF THE FREE ALLOWANCES AND THE PROPOSED CHARGES FROM DOMESTIC CONSUMERS.

+ IN OTHER WORDS THERE IS NO QUESTION OF ONE CLASS OF CONSUMERS SUBSIDISING ANOTHER UNDER THE NEW PRICE STRUCTURE.+

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