TNAG-0635-FCO40-783-Supplies-of-electricity-for-Hong-Kong-1977 — Page 54

C

SECRET

XCS(77)2

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(This is to provide an incentive to liquidate the Development Fund by way of tariff reductions to consumers when surplus cash is available);

(f) the Scheme of Control to remain in force for 15 years,

with negotiations for renewal to start after 12 years. It came into effect from 1st October 1963 and is due to expire on 30th September 1978.

Section D of the Scheme of Control requires the Government and CLP during the renegotiation, to inquire:

"(a) whether the restrictions embodied in the provisions

governing the Development Fund shall be continued or whether new provisions shall be adopted leading towards the elimination of these reserves; and

(b) whether the rate of return to shareholders not subject to restrictions approved in the Scheme of Control shall be modified in the light of the running out of the term of the lease of the New Territories and other existing circumstances; and

(c) into any other matters which may be put forward by the

Government or the two companies.

The meaning of (b) with its reference to "rate of return to shareholders not subject to restrictions" is not altogether clear. But both CLF and the Government interpret it to refer to both the level of permitted return and the level of restriction on the distribution of dividends. A copy of the Scheme of Control document is at Annex C.

Objects of this memorandum

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The objects of this memorandum are:

(A) to report on recent developments in the preliminary

discussions which have taken place with CLP on a revised Scheme of Control;

(B) to describe the expansion necessary to generating

capacity to meet demand for electricity in Kowloon and the New Territories over the next decade;

(C) to consider how this expansion might be financed;

(D) to present CLP's proposals for a revised Scheme

of Control;

(E) to comment on those proposals;

(F) on the basis of these comments, to draw up a brief

for negotiations with CLP;

SECRET