603585-1940-Supplementary-Bill-read-a-first-time---Telephone-Amendment — Page 4

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(3) The annual statement of accounts of the undertaking shall be examined and audited by such person or persons as the Governor in Council may approve in this behalf.

9. Nothing in this Ordinance shall affect or be deemed to affect the rights of His Majesty the King, His Heirs or Successors, or of any bodies politic or corporate or other persons except such as are mentioned in this Ordinance and those claiming by, from or under them.

Saving of rights of Crown and certain other rights.

Objects and Reasons.

1. The terms of the concession granted to the Hong Kong Telephone Company Limited are contained in the Telephone Ordinance, No. 9 of 1925, as amended by the Telephone Amendment Ordinances, No. 9 of 1930 and No. 27 of 1933.

2. Under these Ordinances the company's dividend was restricted to 12 per cent. plus half of profits up to a further 6 per cent. the other half going to reduce subscription rates and in no case was the dividend payable to shareholders to exceed 15 per cent. (See Ordinance No. 9 of 1925, s. 36). Thus one half of the profits betweeen 12 per cent. and 18 per cent. and all profits above 18 per cent. was to be devoted to reducing the rates payable by the subscribers.

3. The Company's directors have argued, in discussions with the Government's Financial Advisers during recent months, that the absolute limit of a 15 per cent. dividend is inequitable because the high rate of profits which the Company has been able to earn has been due largely to its efficiency and partly to the profits on the line to Canton which was not in existence when the original arrangement was made.

4. A reasonable objection to an absolute maximum is that it gives the company no incentive to earn profits by greater efficiency and economy after that maximum is reached.

5. Moreover the existing subscription rates are regarded as reasonably low and further contribution to the public revenue by way of royalty and a contribution of certain free lines for Government purposes has been considered a reason- able basis for settlement in existing circumstances.

6. The proposed amendments are shown in greater detail in the attached Table of Correspondence.

7. The Bill is to be introduced as a Government measure; but its terms have been agreed to by the directors of the company.

March, 1940.

C. G. ALABASTER,

Attorney General,