CLP, Power Assets to Raise Hong Kong Net Power Tariffs by 2.9%-5.9% in 2013
12/11/2012| 05:52am US/Eastern
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By Yvonne Lee
HONG KONG--Hong Kong's two electricity suppliers--CLP Holdings Ltd. (>> CLP Holdings Limited) and Power Assets Holdings Ltd. (>> Power Assets Holdings Ltd (ADR))--told legislators Tuesday that they will raise net power tariffs by 2.9%-5.9% next year due to higher fuel costs and a shift toward burning cleaner fuels.
The tariff increases are expected, as the Hong Kong government is pushing the two power producers to increase their use of more expensive natural gas in the coming years to reduce carbon emissions in Asia's financial hub. Though Hong Kong is known for its beautiful mountains and iconic harbor, tourists find that both are often obscured by a heavy gray pall of smog. Global companies seeking to do business in Hong Kong regularly rank its high level of air pollution among their top concerns.
CLP, which supplies electricity to commercial and residential users in Hong Kong through its unit, CLP Power, said it will raise its power tariff by 5.9% to HK$1.045 per kilowatt-hour from this year's HK$0.987/kWh, while Power Assets Holdings, which is controlled by tycoon Li Ka-shing, said it will raise its tariff by 2.9% to HK$1.349/kWh from 2012's HK$1.311/kWh.
CLP Power said the company's gas costs will rise significantly next year because it needs to secure natural gas from a more expensive supplier from 2013.
"The tariff increase is primarily driven by higher fuel costs. They are three times higher than our existing contracts, which we signed 20 years ago," Richard Lancaster, managing director at CLP Power, said at a Legislative Council economic development panel meeting.
At present, CLP Power buys natural gas from Cnooc Ltd.'s Yacheng gas field offshore Hainan Island in southern China at a lower price under its existing contacts. However, as the field is drying up, it plans to secure new gas supply from PetroChina Co.'s second West-to-East gas transmission pipeline.
Power Assets said the company expects to see a slight increase in coal and liquefied natural gas costs next year, on the back of high international oil prices. The company currently uses coal and LNG as feedstock for power generation.
In recent years, the local electricity market has drawn criticism from legislators and the public because the level of electricity rate hikes has been higher than the rate of inflation. The controversy has regained momentum, prompting a debate in the community over whether the market should be opened up to new players to enhance competition.
Under the so-called scheme of control agreement, the two power companies have been guaranteed a near 10% rate of return annually on their investments until 2018. They will enjoy an extra 0.1 percentage point on top of the 9.99% return rate if their emissions don't exceed a cap set by the government during the scheme of control license period between 2008-2018.
This year, CLP only raised its electricity tariff by 4.9% following a public outcry and a call by the government to cut its originally proposed 9.2% increase. Power Assets raised its tariff by 6.3%.
Power Assets is a unit of Cheung Kong Infrastructure Holdings Ltd. (1038.HK), part of tycoon Li Ka-shing's Cheung Kong (Holdings) Ltd. (0001.HK) group. It supplies power to Hong Kong island, while its bigger rival--CLP--supplies power to Kowloon, the New Territories and China's Guangdong province.
Write to Yvonne Lee at yvonne.lee@wsj.com
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