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Following is a question by the Hon Gary Fan and a written reply by the Secretary for the Environment, Mr Wong Kam-sing, in the Legislative Council today (January 30) :
Questions:
In the past one-odd year, the retail prices of centralised domestic liquefied petroleum gas (LPG) have fluctuated greatly ($35.58, $41.3, $32.89 and $42.22 per cubic metre in late 2011, April, July and October 2012 respectively). Many members of the public have relayed to me their dissatisfaction. They are not only furious about the exorbitant LPG prices, but also discontented with the Government condoning profiteering by LPG suppliers without any regulation. At present, there are 15 housing estates under the management of the Hong Kong Housing Authority (HA) installed with central LPG supply system, but there are only three central LPG suppliers and only one of them has taken the initiative to adopt a pricing mechanism to review the retail prices of LPG regularly. However, some members of the public have pointed out that the transparency of the mechanism is considerably low, and monitoring is difficult as the general public do not know how the formula for setting the prices works. In this connection, will the Government inform this Council:
(a) whether it will take the initiative to discuss with central LPG suppliers the setting up of a fair and open LPG pricing mechanism; if not, how the authorities assist members of the public in monitoring LPG prices;
(b) whether it knows the reasons for the several central LPG suppliers in Hong Kong often adjusting the prices simultaneously at present; given that various LPG suppliers should have different operating costs as they are of varying scales, whether the Government will investigate if the suppliers have engaged in collusive pricing for profiteering;
(c) given the continuous rise in contract prices of LPG from Saudi Arabia in recent years, leading to the corresponding rise of local retail prices of LPG, whether the Government will consider introducing concessionary measures to subsidise members of the public to shift to use other energy sources (e.g. electricity);
(d) given the substantial fluctuations of LPG prices, whether the Government will consider providing fuel subsidies to LPG users when LPG import prices have exceeded a certain level;
(e) given that the measuring units of auto LPG, cylinder LPG and centralised domestic LPG are litre, kilogram and cubic metre respectively, whether it knows why the suppliers use different measuring units; whether the Government has plans to standardise the units concerned to facilitate monitoring by the public;
(f) given that residents of housing estates currently under the management of HA and installed with only a central piped domestic LPG system (such as Kwong Fuk Estate and Tai Yuen Estate in Tai Po and Choi Yuen Estate in Sheung Shui) usually choose to use LPG as fuel, thus having to bear the risk of LPG price fluctuations, whether the Government will provide subsidies to residents in those housing estates or even speed up the redevelopment plans of those estates, so as to alleviate the unfair situation caused by the supply of different centralised fuels to different housing estates; if not, whether the Government will assess if the current practice of residents of public rental housing bearing the risk of LPG price fluctuations is reasonable;
(g) given that the Government has pointed out that, under the existing contract terms with LPG companies, the installation of Towngas distribution network may commence only after the expiry of the existing LPG supply contracts, whether the Government will repeal such terms when entering into new LPG supply contracts, so as to provide an option of supplying Towngas to the housing estates concerned in future; if it will not, of the reasons for that; and
(h) whether it knows the changes in retail prices of centralised domestic LPG from January 2007 to December 2012 (set out the figures of different companies in Annex 1)?
Reply:
President,
(a) In accordance with existing mechanism, a local oil company sets the domestic LPG prices for the coming three months by forecasting the import prices for the coming three months in light of the latest international LPG price (i.e. contract prices of LPG from Saudi Arabia), and making positive or negative adjustment for any difference between the actual import prices and the forecast import prices in the last review. The review of operating costs is conducted once every year at end January.
In monitoring domestic LPG prices, we make reference to the movement of international LPG prices and local LPG import prices and check whether the oil company's price forecasts are reasonable. We will also follow up with the oil company the positive or negative price adjustments due to actual and forecast price difference in the last review, and assess if the annual adjustment in operating cost is reasonable.
The price increase announced in October 2012 as mentioned in the question was mainly due to the rise in import price forecasts from November 2012 to January 2013, and the positive price adjustment arising from actual and forecast price difference in the last review. In the price review of January this year, with the fall in the oil company's import price forecasts from February to April 2013, the company just announced on January 25 a 5.5% reduction in the price of piped domestic LPG. Under this mechanism, the local price of domestic LPG will be adjusted in tandem with the movement of international LPG prices.
Price adjustment is made once every three months in accordance with the established mechanism. After each price review, the oil company also announces and explains to the public the outcome of the review.
(b) We understand that the adjustments of domestic LPG prices of other oil companies in the market basically follow that of the oil company mentioned in (a). Therefore, their prices are very close to one another's.
The Competition Ordinance (the Ordinance) was passed by the Legislative Council in June last year. The Ordinance regulates anti-competitive conduct (including price fixing, abuse of market power etc) in various sectors, with a view to promoting fair and sustainable competition in the market. The Government will implement the Ordinance in phases, with priority in the establishment of the Competition Commission (the Commission) and the Competition Tribunal (the Tribunal). Provisions relating to the Commission have taken effect on January 18, whereas provisions relating to the Tribunal will commence on August 1. The Commission has the power under the Ordinance to investigate into competition-related complaints, and to bring public enforcement action before the Tribunal, either on receipt of complaints, on its own initiative, or on referral from the Government or a court.
(c)&(d) The fuel prices in Hong Kong are determined by individual oil companies with regard to commercial principles and their operating costs; the general public will also make a choice of fuel with regard to their particular circumstances.
The Government understands and is concerned about the impact of LPG prices on the general public, and hence encourages the industry to enhance the transparency of price setting. We are also committed to ensuring a reliable supply of energy.
The Government currently has no plan to use public money to subsidise domestic LPG users.
(e) As the mode of operation and sales of auto-LPG, cylinder LPG and piped LPG are different, it is necessary to use different measuring units. Standardisation of measuring units is not feasible.
Specifically, cylinder LPG is filled in the container in liquid form before it is measured in weight, normally in kilogram. This is similar to the practice in other regions or cities. Piped LPG is supplied to consumers in gas form through pipelines. The volume of gas passing through the gas meter is measured in cubic metre. Auto-LPG, on the other hand, is pumped into vehicles through nozzle in liquid form in petrol filling stations. Same as other auto-fuels, it is measured in litre.
(f) As for public housing estates, it is the policy of the Housing Authority (HA) that Towngas would be provided to public housing tenants wherever possible. Nonetheless, the HA would engage LPG suppliers for public housing estates in remote locations or estates developed years ago when there was no coverage of Towngas at the time of construction of the estates concerned. The LPG supply contracts signed between the HA and the concerned suppliers provide that the LPG price should not be higher than the prevailing private market level, which is also the price paid by other LPG users (including domestic users in private properties or commercial users). Also, under the terms of the LPG supply contracts, other than the central LPG supply, users in public housing estates may choose to use other forms of fuels such as electricity or cylinder LPG.
In fact, the price charged to the users of piped LPG in the public housing estates managed by the HA has been the same as the market price published regularly.
As regards the redevelopment of aged public housing estates, the HA will continue to rely on the result of the Comprehensive Structural Survey Programme and consider structural safety, cost effectiveness of repair options, redevelopment potential and availability of rehousing resources, so as to determine the feasibility and timetable of individual estate's redevelopment programme.
There is competition in the domestic fuel market. The general public may make a choice of fuel with regard to their particular circumstances. LPG prices are determined by individual companies having regard to commercial practices, market conditions and their operating costs. Implementation of any form of price regulatory regime would be inconsistent with the principle of free market. The Government has no plan to use public money to subsidise domestic LPG users.
(g) With regard to converting gas supply from LPG to Towngas in public housing estates, it is difficult to find adequate space for the installation of a Towngas distribution network in a building with its external walls and corridors already occupied by an existing LPG distribution network. The conversion would be technically complicated and costly and require the piped gas supply to be suspended during the installation period, thus creating tremendous disturbance to the tenants. Users would need to replace, at their own expenses, all their household gas appliances with Towngas compatible ones. Hence, conversion to Towngas would bring upon the users tremendous disturbance and financial burden. The HA has no plan for such conversion at present.
The HA would continue to consider contract renewal with LPG suppliers on the premise of a safe and stable gas supply and with regard to the suppliers' past service performance and maintenance standard, etc. and would review and introduce the necessary contractual terms and conditions that serve the best interest of the users in public housing estates.
(h) The retail prices of domestic piped LPG of oil companies from January 2007 to December 2012 are appended in Annex 2.
Ends/Wednesday, January 30, 2013
Issued at HKT 17:20
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