TNAG-0947-FCO40-1166-Oil-developments-in-and-around-Hong-Kong-1980 — Page 10

Through the representatives of the trade on the Oil Policy Committee, it is known that the proposal in paragraph 32 is generally acceptable to the major oil importers (although it should be noted that the China Resources Company does not have a representative on the Oil Policy Committee). If it is decided to proceed with this proposal, the first step would be to arrange discussions with the importers on the detailed workings of the code of practice.

(b) Cost

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The discussions referred to in paragraph 39 would also allow an assessment of what additional costs, if any, would be incurred by the companies as a result of this proposal. Additional costs could be met by the companies, in which case they would eventually be passed on to consumers through higher fuel bills. The costs being met by the companies is the preferred course of action. It is in line with the present situation in which consumers are paying for the reserves of fuel oil and naphtha that are held as a result of arrangements between the power companies and the oil importers. Furthermore, it means that the cost is met more directly by the consumer who also receives the benefit of the reserves.

(c) Storage Facilities

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There is likely to be a need for the oil companies to construct additional storage facilities to hold these reserves. If so, it is proposed that land should be granted for this purpose by private treaty, the premium being set at fair market value. It should be borne in mind, however, that there is likely to be extreme difficulty in finding suitable sites for storage facilities, and this is one of the first subjects that will have to be discussed with importers (as allowed for in paragraph 39 above). The detailed position, as at present, is set out below.

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Shell would have just sufficient tankage to meet a 30-day reserve requirement at present levels of importation of fuel oil and gas oil, but envisage circumstances in which at least 100 000 bbl of additional storage capacity could be urgently required, the provision of which would require additional land and would take time. In 1982, however, additional tankage for 350 000 bbl of fuel oil will be constructed for HEC's new power station on Lamma which would improve the situation. As stated in paragraph 30, the Shell Company already holds a 30-day reserve of naphtha as a result of their existing contract with the Hong Kong and China Gas Company Limited.

CONFIDENTIAL