XN000022-1979-10-09 — Page 3

TUESDAY, OCTOBER 9, 1979

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SCHEME OF CONTROL FOR HEC *****

A SCHEME IS BEING INTRODUCED TO PLACE UNDER FORMAL CONTROL THE TARIFF CHARGES AND PROFITS OF THE HONGKONG ELECTRIC COMPANY LIMITED, THE EFFECTIVE DATE BEING MADE RETROSPECTIVE FROM THE BEGINNING OF THIS YEAR.

ANNOUNCING THIS TODAY (TUESDAY), A GOVERNMENT SPOKESMAN SAID THAT AN AGREEMENT HAS BEEN REACHED WITH THE COMPANY ON A SCHEME OF CONTROL COVERING A PERIOD OF 15 YEARS FROM JANUARY 1, 1979.

THE SPOKESMAN POINTED OUT THE MAIN FEATURES OF THE SCHEME WERE SIMILAR TO THOSE FOR THE CHINA LIGHT AND POWER COMPANY LIMITED AND FORMALISED THE UNOFFICIAL AGREEMENT MADE BETWEEN THE GOVERNMENT AND THE COMPANY IN 1965 SINCE WHEN THE COMPANY HAS OPERATED, ON A VOLUNTARY BASIS, WITHIN THE GENERAL PARAMETERS OF THE CHINA LIGHT AND POWER SCHEME OF CONTROL.

+THE SCHEME FOR HONGKONG ELECTRIC IS DESIGNED TO ENSURE THAT THE SERVICE TO CONSUMERS CONTINUES TO BE ADEQUATE TO MEET GROWING DEMANDS AND IS PROVIDED AT THE LOWEST POSSIBLE TARIFFS,+ THE SPOKESMAN SAID.

UNDER THE SCHEME, THE PERMITTED RETURN ON AVERAGE NET FIXED ASSETS WILL BE BASICALLY SET AT 13.5 PER CENT. HOWEVER, A HIGHER RETURN, AT 15 PER CENT, WILL BE ALLOWED ON FIXED ASSETS ACQUIRED AFTER JANUARY, 1979 WITH ADDITIONAL SHAREHOLDERS' FUNDS.

THE SPOKESMAN EXPLAINED THAT THE HIGHER PERMITTED RETURN ON THE NEW ASSETS WILL NOT RESULT IN ANY SIGNIFICANT INCREASE IN TARIFF CHARGES. +HOWEVER, IT IS NECESSARY IN ORDER TO ENCOURAGE THE RETENTION OF FUNDS IN THE BUSINESS WHICH IS VITAL TO THE COMPANY'S EXPANSION PLANS, THE SPOKESMAN ADDED.

+CARE WILL BE TAKEN TO ENSURE THAT THE EXPANSION PLANS OF THE COMPANY ARE FULLY JUSTIFIABLE, HE SAID.

AS WITH CHINA LIGHT AND POWER, ANY EXCESS OF NET REVENUE OVER THE PERMITTED RETURN WILL BE TRANSFERRED INTO A DEVELOPMENT FUND- ANY SHORT-FALL BETWEEN NET REVENUE AND THE PERMITTED RETURN WILL BE MADE GOOD BY A TRANSFER FROM THIS FUND.

INTEREST ON THE FUND WILL BE SET AT 8 PER CENT. IT WILL BE DEDUCTED FROM THE PERMITTED RETURN AND TRANSFERRED TO A +RATE REDUCTION RESERVE,+ TO BE USED TO REDUCE THE TARIFFS CHARGED TO CONSUMERS BY MEANS OF REBATES.

THE FINANCIAL