TNAG-1518-FCO40-2079-Hong-Kong-International-Airport-1986 — Page 39

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with inflation and growth in business volume, it

might be considered reasonable to afford HKIA a rate

of return towards the upper end of the range shown in

Table 1. Nevertheless there is no firm argument

which would favour any particular one of the rates

tabulated and it might therefore be reasonable to

compromise on the mid-point of the range i.e. 16.5%.

HKG should not be seen to be trying to use the

analogy of public utility companies to maximise the

permitted return and a mid-point is a reasonably

defensible selection.

4.2

The Implications of the Brought Forward Accumulated Unapplied Cash Balance

4.2.1 There remains the matter of the accumulated cash

reflected in the balance sheet (approximately $1,718m

brought forward at 31.3.87). HMG offers advice in

regard to this surplus in Appendix 1:

4.2.2

(a) If there is no intention of constructing a

replacement airport the large unapplied

accumulated surplus reflected in HKIA accounts

should be drawn upon before there is any further

increase in user charges.

(b) If a decision on a replacement airport is likely

to be made before the end of this decade the

unapplied accumulated surplus may be retained as

a partial source of finance for a replacement

airport.

This advice seems to view the unapplied cash in the

balance sheet as entirely representing the result of

obtaining excessive rates of return in the past. The

WG feels that this cash balance could be considered

to have resulted from one of two situations: