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Following is a question by the Hon Frederick Fung and a written reply by the Secretary for the Environment, Mr Edward Yau, in the Legislative Council today (November 19):
Question:
According to the 2008 Development Plan proposed by the CLP Power Hong Kong Limited and Castle Peak Power Company Limited (collectively referred to as "CLP") and approved by the Government, the Fuel Clause Charge (FCC) has doubled since October 2008 because CLP forecast that the average coal price would stand high at US$130/ton until the end of 2009. Nevertheless, it is learnt that the international coal price dropped to about US$100/ton in late October and, with the reduction in coal demand due to economic recession, the coal price is expected to stand low. In this connection, will the Government inform this Council:
(a) of the weekly movements of the international coal price over the past three months and the latest estimate of its average price between now and the end of 2009; and
(b) given that the international coal price has dropped substantially because of the global economic downturn in recent months, whether the Government will discuss with CLP afresh with a view to lowering the FCC so as to assist the public and the small and medium enterprises in tiding over financial difficulties?
Reply:
President,
(a) The international coal price has been very volatile this year. Coal price per ton rose from about US$90 at the beginning of the year to a peak of over US$190 in July. Although it eased gradually to US$95 by the end of October, it rose again to over US$100 in early November. Owing to the high volatility of coal prices, compounded by the international financial crisis and uncertainty over the global economy, both the Government and CLP are not in a position to make an accurate forecast of the coal price in 2009 at this point in time.
(b) Pursuant to the Scheme of Control Agreement (SCA), fuel cost is to be borne by consumers. Basic Tariff includes a standard fuel cost as agreed between the Government and CLP. CLP has the right to recover from or return to the consumers, by means of a charge or a rebate from time to time, the difference between the actual fuel cost and the standard fuel cost. As such, the power company cannot make any extra profit or return under the Fuel Clause Account mechanism.
During the 2008 Tariff Review carried out at the end of last year, CLP projected that average coal price in 2008 would be about US$63/ton. In accordance with this coal price projection, CLP's Fuel Clause Charge (FCC) from January 1, 2008 was set at 5.9 cents/kWh. However, with the continuing increase in coal price in 2008 till July, the FCC level was not sufficient to meet the difference between the actual fuel cost and the standard fuel cost during the period. As a result, the Fuel Clause Account has accumulated a deficit balance of about $800 million by the end of September 2008. To avoid accumulating an even larger deficit balance in its Fuel Clause Account, CLP increased its FCC by 5.9 cents/kWh to 11.8 cents/kWh on October 1, 2008 upon the commencement of the new SCA.
International coal price has declined in recent months and is lower than the average coal price (i.e. CIF price including freight charges) of US$130/ton up to the end of 2009 as projected by CLP in their Development Plan. Nevertheless, as the Fuel Clause Account has accumulated a substantial deficit balance, CLP is not able to lower the FCC in the near future.
Under the Fuel Clause Account mechanism, CLP needs to first clear its Fuel Clause Account deficit balance before it has room to lower the FCC. The Government will continue to monitor coal price movement in the market and its consequential impact on CLP's Fuel Clause Account balance. If there is indeed room for a FCC reduction, the Government will discuss with CLP regarding the timing and magnitude of such adjustment.
Ends/Wednesday, November 19, 2008
Issued at HKT 12:36
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