XN000022-1996-10-30 — Page 23

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Much has been made of Government seeking a dividend from trading funds' operating surpluses. It is, however, entirely in accordance with the "user pays" policy for Government to recover the cost of capital over time from a trading fund in order to avoid taxpayer subsidy of its services.

Let us look then at the rate of return delivered by the trading funds to date.

The Land Registry was established as a trading fund on 1 August 1993, with a target rate of return set at 10% of Average Net Fixed Assets. In 1993-94, it achieved 9%, in 1994-95, 10.3% and in 1995-96, 14.7%.

The Companies Registry was established as a trading fund at the same time as the Land Registry. It too has a target rate of return of 10%. In 1993-94 it achieved 6.2%, in 1994-95, 8.1% and 1995-96, 6.5%. The financial performance of the Companies Registry last year was affected by a slow down in the incorporation of companies due to economic factors, and by a delay in the planned introduction of increased fees and charges, pending this Council's consent. We expect the Companies Registry's financial performance to improve in 1996-97.

The Sewage Services Trading Fund was established on 11 March 1994. However, it did not begin full operation as a trading fund until April 1995 when a scheme of charges for sewage services was introduced. Because of the expected complications of introducing a community-wide charging scheme for sewage services which had previously been free, the trading fund's target rate of return was set at 0%, requiring it to break even only in nominal terms. In 1995-96 sewage services achieved an operating surplus of $76 million. For the current year however we expect to see a loss of over $100 million because we have so far been unable to obtain this Council's agreement to maintain the value of sewage charges in real terms. We are now considering in the current and following years how to adjust the sewage charge and the control of the fund's capital to underpin the longer-term financial prospects of the trading fund. We must also, moreover, be mindful of the need to take into account the recommendations of the Trade Effluent Surcharge Review in the first half of next year, and in the light of these, we may even need to revisit the original financing principles behind the Strategic Sewage Disposal Scheme for the longer term.

The Office of the Telecommunications Authority Trading Fund was established on 1 June 1995. We have set a target rate of return for OFTA of 14.5%. Given the relatively high level of fees level regime that OFTA inherited from its vote funded predecessor, and the continued growth in the telecommunications industry, it somewhat predictably over-achieved its target in 1995-96 with a rate of 42.4%. Before it was set up, however, we undertook that OFTA would not increase its fees for five years and would transfer all operating surplus in excess of the target return to a development reserve so as to reduce the requirement for future fee increases. In addition to this commitment to "freeze" fees, OFTA actually cut paging licence fees last year at an estimated cost of $29 million in foregone revenue. Because of the effect of inflation we expect OFTA to achieve a rather lower rate of return for this year.