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The following is a speech by the Secretary for Economic Services, Ms Sandra Lee, at the opening ceremony of the Advances in Power System Control, Operation and Management (APSCOM) 2000 Conference on "Towards the Era of Deregulation and Competition" today (October 30):

Good morning, Mr Lui, Dr Kennedy, Mr Qi, distinguished guests, ladies and gentlemen,

I am honoured to be with you at the Opening Ceremony of this International Conference on Advances in Power System Control, Operation and Management (APSCOM). On behalf of the Hong Kong Special Administrative Region Government, I extend a very warm welcome to you all.

This is the fifth APSCOM international conference held in Hong Kong. The Organizing Committee has made deregulation and competition the theme of the conference this year. This is indeed a topical issue in the development of Hong Kong's electricity market.

On this point, I am sure my friends from the two local power companies are scrutinising every word I say. Let me be fair to them by starting with a brief account of how they have been working with us to provide Hong Kong with a reliable supply of electricity.

In Hong Kong, we rely on the private sector to meet our electricity demands. The Government monitors the sector to ensure, amongst other things, that consumers have reliable and efficient supplies at reasonable prices.

Our two local power companies have their respective service areas, principally separated by the water, not because of any franchise but a result of historical development. The power companies have entered into Scheme of Control Agreements with Government. The Agreements provide a framework for Government to monitor the companies' financial affairs and protect the interest of electricity users, while allowing room for the companies to attain a certain level of returns.

Under this regulatory framework, the two power companies have been making the necessary investments to provide adequate generation, transmission and distribution facilities to meet Hong Kong's demand for electricity. For years, the reliability of our electricity supply has been over 99.9 per cent, which should be among the best in the world. This is crucially important to Hong Kong as an international financial and business centre.

Our electricity tariffs have also decreased in real terms over the past decade or so. But I must add that I would certainly welcome even lower tariffs.

That said, we all know that a Scheme of Control is not the only means to regulate the electricity market. Otherwise you will not be spending the next three days talking about deregulation and competition.

We are fully aware of the waves of on going or planned electricity market restructuring all over the world. There is also community aspiration in Hong Kong for more competition in the energy market. Although the current Scheme of Control Agreements will not expire until 2008, we must start examining what type of regulatory regime suits Hong Kong best in the long term.

This is not to say that we are starting afresh. Late last year, we completed a consultancy study on interconnection and competition in the electricity supply sector in Hong Kong. Taking into account the findings of the study and public comments we subsequently received, we have decided that it would be a logical way forward to enhance the existing weak interconnection between the two power companies. This would open up more market options for us in future. We will be starting shortly a more in-depth study on the technical aspects of the new interconnection.

In parallel, we are also examining the institutional issues. To learn from other countries where the electricity markets have been or are being restructured and competition introduced, my colleagues have recently visited some of these countries. They have gathered some very useful information about market restructuring from different regulators, grid operators, power pools, power companies and other parties concerned.

However, we also recognize the characteristics of Hong Kong's electricity sector. For example, unlike some other places where there are government interest or equity in the industry, all our existing power facilities are investor-owned and privately operated. Our land resources are so scarce that it is becoming increasingly difficult to find sites for new power stations. We do not have any indigenous energy resources and all our fuel is imported. Just to name a few.

For this reason, while we will be drawing on market restructuring experience elsewhere, it is imperative that we map out the way forward taking into account our local circumstances. As I mentioned before, reliability of supply is crucially important to Hong Kong. It is therefore also imperative that reliability would be one of the key factors to be taken into account in any market review.

At this stage, we have an open mind on the future development of our electricity market. Over the next few years, we will be examining different options. We are also maintaining contact with the authorities of the Mainland electricity sector and will be looking for opportunities for enhanced cooperation. The challenge, as always, is to find an optimal option that would maintain a high standard of reliable electricity supply at reasonable cost to consumers while delivering maximum economic benefits.

Today, I am grateful to the organizer for inviting many prominent figures in the power industry worldwide to speak at this conference. It provides a wonderful opportunity for participants and our colleagues to learn more about different aspects of electricity market restructuring and competition, as well as the latest development in different places. I commend the Organizing Committee for their efforts.

Finally, I wish all of you a very successful conference over the next three days. But since tourism is also being part of my policy portfolio, I would encourage all overseas visitors to spare some time, or better still, stay for a few more days after the conference to see Hong Kong. We have good shopping and dining outlets and many attractive places for sightseeing. So please do remember to spend some money here.

Thank you.

End/Monday, October 30, 2000

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