TNAG-0638-FCO40-786-Supplies-of-electricity-for-Hong-Kong-1977 — Page 128

Draft

SCHEME OF CONTROL

ANNEX I

uth November, 1977

China Light recognise their continuing obligation to contribute to the development of Hong Kong by providing substantial additional facilities to meet the future demand for electricity. In pursuit of this objective China Light, with approval of the Government of Hong Kong, entered into agreements with Esso in 1964 under which a generating company, Peninsula Electric Power Company Limited (PEPCO), jointly owned by China Light (40%) and Esso (60%), would construct additional generating capacity for sale of electricity to China Light.

To facilitate financing and construction of a large new power station for which commitments must be undertaken in the near future, China Light and Esso now plan to establish a New Generating Company. The three companies, namely China Light, PEPCO and the New Generating Company when established, will be subject to this Scheme of Control, as will any future companies that may be formed by China Light alone or in conjunction with Esso or others to satisfy the growing demand for electric power. The group of companies so associated will hereinafter be referred to as "the Companies".

The Government of Hong Kong recognise that the Companies and their shareholders are entitled to earn a return which is reasonable in relation to the risks involved and the capital invested in and retained in the business. In return, the Government of Hong Kong wish to be assured that service to the consuming public continues to be adequate to meet demand, to be efficient and of high quality, and is provided at the lowest cost which is reasonable in light of financial and other considerations.

In recognition of the above, China Light, Esso and the Government of Hong Kong have jointly developed the following procedures to govern the financial affairs of the Companies so far as they relate to the generation, transmission, distribution and sale of electricity :

A.

Tariff Limitation

1. China Light's tariffs will be subject to cost of service

adjustments applied on a quarterly basis to pass along currently to its consumers the benefits of economies of scale and other improvements in efficiency as achieved, and to take into account changes in operating costs of the Companies including costs of labour and materials, supervision, depreciation, interest and taxes, as well as the repayment of long term loans approved by the Government. Such adjustments shall be determined pursuant to procedures to be approved by the Government. The China Light revenue system will include, as hitherto, provision for adjusting charges to offset changes in the costs of fuels consumed by the Companies.

2.

Adjustments in tariff schedules shall be subject to review by and in consultation with the Government before implementation, as provided for in Annex I.