TNAG-1920-FCO40-2724-Hong-Kong-water-supply-from-China-1989 — Page 7

XCC (89) 54

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In the past, the price of

of water from China has been increased on an ad hoc basis in response to notification from the Chinese Authority of а need to do SO (2). Although negotiations have taken place on proposed increases, the Chinese Authority has never been prepared to reveal sufficient details of the cost of their water supply operation. We have therefore had to negotiate blind. Although the level of the price increases in recent years has been reasonable (averaging 10.4% per year over the last ten years), as the proportion of Hong Kong water from China increases steadily (from 50% in 1985 to 60% in 1988 and probably even higher in future) we are concerned that we do not have sufficient influence or control over cost. Achieving some influence or control should be an objective for these negotiations.

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either

or

We could achieve our objectives in one of two ways

(a)

(b)

since prices have already been agreed up to and including 1990/91, we could agree the maximum annual increase for water prices from 1991/92 until 1998/99. (This is the year in which the last repayment would be made, assuming that repayment is made over a similar period to payment it self.) We propose to negotiate for maximum annual increase of 8%, with a fallback position of 10%;

the Chinese Authority could agree to disclose the present basis of water prices (labour, fuel, materials,

This

overheads, other operating costs to be specified, retained earnings and reinvestment) and to provide appropriate information (perhaps with

with reference to price indices) when seeking any increase in prices. Any such increases should have regard to fluctuations in the HK Dollar and RMB exchange rate. would not give us any guarantees about future price increases, but we would be in a better position to negotiate with them, and to explain increases to the Hong Kong public. We would explain this arrangement to the Chinese Authority as being similar to that required of private utility companies under Hong Kong Government Schemes of Control.

(2)

Members will be aware that in the past water prices were in RMB, but since January 1987 these have been set and

>

payments made, in HK dollars.