The House News
17th March, 2014
China SOE’s Executives Propose Chinese Companies Should Takeover CLP and Hong Kong Electrics’ Operation in HK
China SOEs urge Chinese companies to takeover CLP and Hong Kong Electric
Chinese companies have taken another move! They are planning to monopolise Hong Kong’s electricity industry. Tan Xinjian from China Resources Power’s nuclear division wrote an article in Energy Magazine, detailing the shortcomings of the two electricity companies in Hong Kong (China Light & Power and Hong Kong Electric), and recommended that Chinese companies to takeover the assets of China Light & Power (CLP) and Hong Kong Electric (HKE), and aim for supplying electricity to Hong Kong from China (only) in the long run.
Li Ka-shing’s Power Assets Holdings Limited spin off HKE earlier this year and introduced State Grid Corporation of China (SGCC) as a key shareholder. SGCC acquired 18% stake in Hong Kong Electric (HKE) for USD1.3 billion – another similar case happened in 2013 when China Southern Power Grid Company acquired 30% stake in CLP’s Castle Peak Power Limited. Hong Kong electricity industry has long been an oligopoly, and is no now Chinafied.
Tan said in his article “How to revolutionise Hong Kong’s electricity industry?” that because the government promised a franchise license to both CLP and HKE indefinitely which also comes with a fixed profit margin, “Hong Kong’s power supply had been stagnated which causes a substantial economic burden”. The article also mentioned that the two power companies have been attempting to raise electricity prices, which “severely impacted Hong Kong’s stability”.
The article also details various problems of the electricity sector: environmental, people’s livelihood, political, electricity network safety, and asset management. Environmental problems focuses on coal and oil; people’s livelihood issues focus on the fact that the two electric companies will transfer all the ever increasing cost of fuel and resources to the people of Hong Kong under the “Scheme of Control Agreement (SCA)“; political issues focus on the oligopoly of the industry leaving the government with no power to negotiate; network safety problems are around the incident in July 2012 when the production of Castle Peak power station suddenly stopped and had to turn to China Southern Power Grid for emergency supply with a conclusion that “without the support of the network in China, Hong Kong’s electricity supply could face series problems”; and asset management problems are bout the commercialised nature of Hong Kong electricity supply and suggests that “as public utility, electricity network should be nationalised”.
The article proposed three solutions: (1) take back CLP and HKE’s assets when SCA expires in 2018, and leave them to be operated by the HKSAR Government or Chinese companies that are located in Hong Kong, and redesign the electricity network in order to allow Guangdong Lufeng’s nuclear power network to supply electricity to Hong Kong; (2) restudy the possibility of transporting electricity from Yunnan’s hydroelectric plants; and (3) approve the initial construction work of nuclear plants and wind turbine in Hong Kong.
On point (1) above, the article stated that the coal and natural gas powered plants in Hong Kong are operating far less hours than those in China; Castle Peak and Lamma power stations have occupied a large area of high quality coastal land, and coal and waste coal storage also occupy large amount of land in Hong Kong. The article recommended that after both power stations are closed down, the plots of land should be reassigned for logistic, commercial and residential purposes. It also recommended the government to evaluate the remaining assets of the two companies (CLP and HKE) at net value, and hand them over to Chinese companies to operate after electricity sector is nationalised.
When explaining point (2), the author said that as China’s economy slows down, the Canton (Guangdong) and Fujian plants have accumulated excess power supply which is a problem that needs to be resolved. The article proposed that after Hong Kong’s electricity supply is nationalised, a Canton-Hong Kong network should be built in order to minimise the cost of supplying electricity to Hong Kong.
When elaborating on point (3), the article said that in order to support and protect the electricity supply, a back-up power plant site has to be developed. The initial steps are to locate suitable areas near Lantau Island and South of Hong Kong Island.
According to Ming Pao Daily’s report on 17th March 2014, the HKSAR Government is preparing to discuss with CLP and HKE about the arrangements when SCA expires in 2018, and that the government is about to launch the public consultation on fuel mix for electricity generation. Ming Pao’s sources confirmed that China Resources Power’s sent its new energy department to Hong Kong, which recommended to the HKSAR government to take back CLP and HKE’s assets after SCA expires in 2018, in order hand them over to Chinese company/companies to operate. The group from China Resources Power also proposed the construction of nuclear plants in Hong Kong soil (according to statistics, over 20 nuclear plants had been built in China surrounding Hong Kong at the boarder).
Ming Pao also quoted China Resources Power’s Tan Xinjiang that he was one of the members from the company who visited Hong Kong in the above-mentioned tour. He and the leader of the tour Li Jinying have requested to meet with the officials from Hong Kong’s Environmental Bureau, to present their proposal on revolutionising Hong Kong’s electricity sector. Two assistant secretaries from the Bureau met with Li and Tan.
They later on wrote to the Chief Executive Office to request a meeting with CY Leung and Environmental Bureau’s Secretary Wong Kam-sing. Tan claimed that Leung declined to meet but sent Deputy Secretary Vivian Lau Lee-kwan to meet with them, yet no direct response was given to their proposal so far.
Tan also told Ming Pao that the proposal him and Li Jinying gave to the government is similar to the article he wrote in Energy Magazine.
In response to Ming Pao’s enquiry, Environment Bureau did not admit nor decline if they have met with China Resources Power’s representative group. However, the Bureau said that the government will meet will various stakeholders during the consultations, including industry experts, academics and NGOs.
When asked about Tan’s proposal, Bureau said that the government will launch consultation later this year in order to explore the opportunity for introducing more competition in the sector and bring in additional benefits to the existing users. The Bureau also said that if the government plans to change the regulatory framework of the current electricity supply system after 2018, it will discuss with the existing power supply companies in 2016 about the readiness of the existing facilities, and the possible changes to the regulatory framework and the handling of transfer period ahead of the changes.
China Resources Power was established in Hong Kong in August 2001. Its core business is to invest, develop and operate large scale coal fueled power generators in provinces including Peking, Hebei, Henan, Liaoning, Shangdong, Jiangsu, Zhejiang, Anhui, Hubei, Hunan, Guangdong and Yuennan. China Resources Power’s board is chaired by Zhou Junqing.