TNAG-0638-FCO40-786-Supplies-of-electricity-for-Hong-Kong-1977 — Page 17

CONFIDENTIAL

XCC(77)93

(b)

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with regard to dividends, the best solution would be to rely on the Company's commercial judgement as far as dividend growth is concerned and, in addition, to look to the various review procedures, embodied in the Scheme of Control, to avoid any abuse in this area. Although a halving of the dividend growth p. a. would reduce tariffs by about 0.9 cents over the period in question, such a reduction in dividends is unlikely to be acceptable to the CLP Board and consequently its imposition would involve the Govern- ment, instead of CLP, in having to arrange finance for future electricity generation in Hong Kong. There is, moreover, no sound argument for imposing dividend restrictions on CLP, when no other utilities or comparable undertakings in Hong Kong are similarly restricted.

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To sum up, it would seem that the proposed Scheme of Control would not operate with any significantly adverse effects on consumers. The need for CLP's expansion arises from an expected increase in economic activity, growth in the population and improved standards of living. As recently as 1974 no growth was experienced in the electricity industry and even in 1975 it was only 3%. The outlook has now changed so abruptly that it will be necessary to make major additions to generating capacity in a far shorter time scale than is usually the case. The suddenness of the need to develop poses difficulties in paying for ex- pansion and the plan proposed seems to spread the burden of payment in as sensible and efficient a manner as possible, all things considered. This does not mean, however, that the Government should not continue to explore ways and means of reducing the overall cost of electricity in the long term. Amongst the possibilities already being considered are a cross-harbour link of the CLP and Hongkong Electric Company's systems and the eventual integration of the two power companies' generating facilities.

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(a)

(b)

The apparent advantages of integration are:

the elimination of the need to provide a new site for HKE on the south side of Hong Kong in the early 1980s;

as both companies could use a common spinning reserve, running costs would be reduced;

(c)

the larger the overall network, the more scope

there is available for reducing the extent to which

capacity has to exceed maximum demand;

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