TNAG-1518-FCO40-2079-Hong-Kong-International-Airport-1986 — Page 36

I #

emanate from the reasonable rate of return decided

upon and the capital financing requirements of HKIA.

4.1.2

-

There is no internationally recognised reasonable

rate of return for airports which can be adopted.

The BAA has a financial target of around 6% 7% on

net assets employed based upon the current cost

accounting convention. Given that current cost

accounting requires the current value (as distinct

from original cost) of assets to be included in the

asset base the required percentage return is much

lower than that which is reasonable on a historic

cost asset base. Current cost accounting has not

been generally adopted in Hong Kong and it would be

impracticable to do so for the memorandum accounts of

one Government utility.

4.1.3 The argument that a reasonable rate of return is that

which is derived from charging what the market will

bear or

fees of similar levels to those of another

airport elsewhere in the world would not accord with

HMG's international obligations. Charges must be

based upon covering costs at Hong Kong plus a

reasonable rate of return on investment.

4.1.4 The only ready guide to what might be considered a

reasonable rate of return is the profit limits set in

the schemes of control applied to Hong Kong's public

utility companies with a franchise or a quasi-

franchise in their respective fields of activity

(obviously HKG has decided what a reasonable rate of

return is for them). While these limits vary

slightly from one utility company to another and the

basis for calculating the return is not identical in

all cases, most have the following general

characteristics: