Legislative Council Questions

Question asked by Hon Fred LI regarding changes in the charges of public utilities and transport in a period of deflation

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Date of sitting : 14 November 2001
Asked by: Hon LI Wah-ming
Replied by : Secretary for Economic Services
Secretary for Transport

Question :

Will the Government inform this Council:

(a) of the up-to-date average cumulative percentage change in respect of each of the following categories of charges since October 1, 1998: unit charges on electricity, gas and water, fixed network telephone tariffs, container terminal handling charges, airport landing charges, as well as the fares of the KCR, LRT, MTR, franchised buses and ferries;

(b) how these figures compare with the cumulative percentage change in the Composite Consumer Price Index over the same period; and

(c) whether it will take measures to promote competition in the relevant sectors so that such service charges can be reduced in keeping with deflation?

Reply:

Madam President,

1. The average cumulative percentage changes in the charges of various public utilities and transport service sectors since 1 October 1998 are set out at the Enclosure presented to Members.
2. The cumulative change in the Composite Consumer Price Index (CCPI) during the period from October 1998 to September 2001 was -8.2%.

   Regarding changes in the charges of the various sectors listed at the Enclosure and the cumulative change in the CCPI over the same period, I do not think direct comparison can be made between the two. The reason is that the CCPI is an indicator of general household expenditures. It comprises 9 expenditure categories, most of which have no direct relation with the operating costs of the sectors listed at the Enclosure. I shall elaborate later.

3. I do not agree that simply by promoting competition, it will cause the various sectors to reduce their service charges according to deflation. In determining the level of service charges, operators have to take into account a number of factors. Both operating costs and business development are important considerations. On operating costs, while the CCPI can be taken as an indicator of deflation or inflation, some of its component categories, i.e. food, housing, miscellaneous services, durable goods and clothing and footwear, which represent 81% of the Index, have little bearing on the operating costs of public utilities and transport services. As such, we cannot, on the basis of changes in the CCPI, presume that the operating costs of individual public utilities or transport services will increase or decrease, nor can we, based on such comparisons, decide that their service charges should be raised or reduced.

   In fact, for public utilities and transport services sector operators, the bulk of their operating costs, including staff emoluments, prices of imported equipment and raw material, etc., may not change according to the local CCPI. On account of their human resource management policies, operators in these sectors may not wish to cut costs by curtailing their staff expenditures. I understand that the power and gas companies, the Airport Authority, the railway companies, franchised bus and ferry operators did not make pay reduction last year, rather, they enhanced productivity through measures such as improving quality management. Furthermore, operators will also need to strike a balance between charges and business development plans, e.g. whether to invest for further expansion, upgrade the quality of their services and products, etc.

   A predominant reliance on free market forces and minimising interference has all along been our economic policy and the principle for promoting competition. Based on this principle, all Government bureaux and departments work to maintain a fair business environment for the relevant sectors, and where necessary, take appropriate sector-specific measures to rectify anti-competition behaviours and further promote competition. For example, the telecommunications sector, regarded as the most competitive industry, has fruitfully translated this policy into action. In terms of local telephone services, the Government immediately introduced competition into the market and issued licences to three new service operators upon the expiry of the franchise of the Hong Kong Telephone Company Ltd. (HKTC) in 1995. As the HKTC could no longer rely on its external telecommunications services to subsidise local residential telephone services, the Administration permitted the HKTC to raise gradually its charges for residential calls to cost-recovery level. This creates an environment conducive to competition for the new operators, and hence a foundation for development of a competitive telephone service in the long run. Separately, in 1999 and 2000, the Administration liberalized respectively the external telecommunication services and facilities. Thereafter international call rates continued to drop. It is estimated that consumers had thus saved up to HK$9.4 billion in 1999 and 2000.

   Another example is the public transport sector. Upon the commissioning of the new railways, inter-modal competition will be further enhanced, providing more choices to commuters. We have also taken other measures to promote competition. For instance, we award the right to operate sizeable network of new franchised bus routes through a selection process open to all existing franchised bus operators, and invite open tenders for new ferry services and green minibus route packages.

To sum up, it is not appropriate to require that all public utilities and transport service sectors adjust their charges solely according to the movements of the CCPI.

Thank you, Madam President.

Enclosure

Information provided in response to a question raised by
the Hon LI Wah-ming on 14 November 2001

The average cumulative percentage changes in the charges of various public utilities and transport sectors since 1 October 1998 are as follows -
 

Economic Services Bureau
14 November 2001