TNAG-0635-FCO40-783-Supplies-of-electricity-for-Hong-Kong-1977 — Page 67

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XCS (77)2

(g) Dividend restrictions

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It is important that CLP should retain a good proportion of its profits in the business for expansion and this would be in keeping with the policy of other utility companies. The present restrictions do not appear to have limited unreasonably dividends to shareholders. But if in the future there appeared to be a danger that CLP's dividends were out of line with dividends paid by other large undertakings in Hong Kong (for example, as a result of inflation and higher risks), then the dividend restrictions on CLP could be reviewed.

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CLP's argument against restrictions is that they are not included in the Schemes of Control for the other utilities. This is not an easy argument to counter; and it may be necessary to concede no dividend restrictions in the interest of reaching an overall agreement with the company.

(h) Fuel escalation charge

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The fuel escalation charge has been a bone of contention with the public since the fifties especially as CLP and HKE use different formulae for their calculations. The forthcoming negotiations offer an opportunity for trying to standardise the formulae and for recasting the present unrealistic base price.

(i) Duration of Scheme of Control

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In view of its heavy investment programme, CLP needs a fair degree of certainty that its returns will be maintained for a reasonable period. But in the changing circumstances of Hong Kong, a shceme agreed now may not be appropriate in 7 years' time, as provided for in the re- negotiation provision CLP have suggested. It might be better to provide for, say, bi-annual reviews on some of the more detailed points involved (e. g. accounting policies) where views change from year to year, as, indeed, do requirements under the Companies Ordinance (e. g. treatment of exchange profits and losses, capitalisation of interest).

(f) Negotiating brief

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On the basis of the comments in the preceding paragraphs, the following is proposed as a brief for the Government side to use in the forth- coming negotiations with CLP :

(a) New Generating Company (paragraphs 17(a), 18 and 19)

The proposal should be accepted if the new Scheme of Control can provide for:

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