TNAG-0638-FCO40-786-Supplies-of-electricity-for-Hong-Kong-1977 — Page 120

C.S. 166

CONFIDENTIAL # Z

XCS(77)2

12

(d) Development Fund and Balancing Fund

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If the concept of the Development Fund, as described in paragraph 17 (d), is accepted then some method of calculating the necessary appropriations to the Fund must be adopted. CLP's suggestion of using 5 10 year financial forecasts (agreed with the Government) as a basis for quantifying the appropriations would seem to be the most efficient way of doing this, as any irregularities in cash flow can thereby be smoothed out.

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But the introduction of a further fund, the Balancing Fund, seems to be an unnecessary complication; and there would be considerable difficulty in ascertaining the profits attributable to each Fund. A simpler solution would be to transfer any excess at the end of a year to the Development Fund as at present, and to take the size of the Fund into consideration when determining tariffs for the following year.

(e) Tariff Adjustments

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To determine these tariffs, the Government and CLP would meet annually specifically to examine the company's financial position and to establish whether or not any adjustment to tariffs was necessary either to increase the size of the Development Fund for future capital expansion or to meet increased operational costs (other than increased cost of fuel which would be dealt with via the fuel escalation clause). Prior to this meeting, CLP would submit 5 year forecasts of:

(a) growth of sales;

(b) additions to plant and equipment;

(c) basic assumptions incorporated in respect of

inflation, tax rates, interest etc;

(d) borrowings;

all summarised into profit forecasts, balance sheets and cash flow statements based on current tariff levels.

CONFIDENTIAL #

機密

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