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LCQ6: Liquefied Petroleum Gas Taxi Scheme
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     Following is a question by the Hon Tang Ka-piu and a written reply by the Secretary for the Environment, Mr Wong Kam-sing, in the Legislative Council today (February 26):

Question:

     When the Government launched the Liquefied Petroleum Gas (LPG) Taxi Scheme in 1999, it provided sites for dedicated LPG filling stations at nil land premiums in order to support the Scheme. All dedicated LPG filling stations are operated under the Design, Build and Operate (DBO) contracts signed with the Government for a period of 21 years. LPG pump prices at dedicated LPG filling stations are capped by a Pricing Formula while non-dedicated LPG filling stations are free to adjust their pump prices. Given that the DBO contracts for the first batch of dedicated LPG filling stations will expire in 2020, and that the pump prices at dedicated LPG filling stations are lower than those at non-dedicated LPG filling stations, some members of the taxi trade have expressed great concern about the arrangements after the expiry of those DBO contracts. In this connection, will the Government inform this Council:

(1) of the number of dedicated LPG filling stations whose DBO contracts will expire in the next 10 years, and set out in a table the addresses, names of contractors and dates of expiry of such DBO contracts; whether the DBO contracts contain any renewal clause; if so, of the details; if not, the reasons for that and how the authorities will handle the renewal of DBO contracts with the operators;

(2) given that currently there are only two non-dedicated LPG filling stations on Lantau Island for use by taxis while the dedicated LPG filling stations in other districts are far away, thus leaving Lantau taxis with no alternative but to have their taxis filled with LPG at the two non-dedicated LPG filling stations, where the pump prices are higher, whether the authorities have assessed if such a situation constitutes regional price discrimination; if they have assessed, of the outcome;

(3) whether it knows the respective total numbers of vehicles and, among such vehicles, the respective numbers of taxis having LPG filled at dedicated and non-dedicated LPG filling stations, as well as the sales volume of LPG at these two types of filling stations in each month of the period from January 2000 to January 2014 (set out in tables of the same format as Annex 1);

(4) whether it knows the current number of LPG filling nozzles at each dedicated and non-dedicated LPG filling station (set out in Annex 2);

(5) as the Government introduced a new pricing adjustment mechanism in 2006, under which LPG prices can be adjusted once every month instead of once every six months, and stated that the mechanism would help strike a better balance between the supply of and demand for LPG at dedicated and non-dedicated LPG filling stations, whether the authorities have assessed if the supply of and demand for LPG at these two types of LPG filling stations have reached a balance at present; if the assessment outcome is in the affirmative, of the justifications; if the assessment outcome is in the negative, whether any review will be conducted;

(6) whether the authorities received in the past five years any complaint that dedicated LPG filling stations had not utilised all their LPG filling nozzles; if they did, of the number of such complaints, and whether the authorities conducted any surprise check on the LPG filling stations under complaint; and

(7) given the comments of some members of the taxi trade that LPG prices at both dedicated and non-dedicated LPG filling stations have been rising recently, and that LPG prices are "quick to rise and slow to drop", whether the Government will conduct a study on allowing taxi drivers to levy passengers a fuel surcharge; if it will, of the timetable; if not, the reasons for that?

Reply:

President,

(1) There are 12 dedicated LPG filling stations in Hong Kong and their operation contracts will expire between 2021 and 2022. The locations, names of operators and contract expiry dates of these filling stations are set out in Annex 3.

     The operation contracts of the dedicated LPG filling stations last for 21 years and there is no renewal clause in the contracts. When considering the arrangements after the expiry of the contracts of the dedicated LPG filling stations, we will take into account the need to maintain the smooth operation of the LPG filling network, the overall market situations, the needs of LPG vehicles and etc. in order to make the appropriate arrangements.

(2) The dedicated LPG filling stations were first set up to form a LPG filling network as soon as possible so that the taxi trade could replace their diesel taxis earlier with LPG ones, thus improving roadside air quality. Therefore, the Government offered land without premium to set up 12 dedicated LPG filling stations at strategic locations in the urban areas (i.e., close to the operating areas of the majority of taxis). Moreover, it is stipulated in the operation contracts between the Government and dedicated station operators that their LPG ceiling prices are adjusted in accordance with the pricing formula. Subsequently, through the open market mechanism, the Government established a LPG filling network with wide coverage and operated by oil companies on commercial principles. To further expand the LPG filling network, the Government has since year 2000 required that all suitable new petrol filling stations on the land sales program must provide LPG filling facilities. Under this policy, the number of LPG filling stations for taxis and light buses has increased to 62, including 12 dedicated LPG filling stations and 50 non-dedicated stations. There are now four non-dedicated LPG filling stations for taxis and light buses on the Lantau Island, of which three are in Tung Chung, and one at Chek Lap Kok. They are run by three different operators and provide 20 LPG filling nozzles and are sufficient to meet the demand of refilling services of LPG vehicles operating in that area. According to the LPG filling station operators, as Lantau Island are further away from LPG depots, the transportation costs are higher.  There are also fewer LPG vehicles (mainly 50 Lantau taxis) refilling in the area.  Hence the operating costs are different from LPG filling stations in other areas and their LPG prices are difficult to compare directly.

(3) The monthly LPG sales volume of dedicated LPG filling stations are commercial data that belongs to the operators. We can provide the range of vehicle-refuellings per month of the 12 dedicated LPG filling stations in the last four financial years as Annex 4.

     We do not have information on the monthly number of vehicles refilled at non-dedicated LPG filling stations.

(4) The current number of LPG filling nozzles at dedicated and non-dedicated LPG filling stations is set out in Annex 5.

(5) According to the original arrangement of the design-build-operate contracts of dedicated LPG filling stations, the LPG ceiling prices were adjusted once every six months according to the average International LPG prices over the last six months. For the first five years after the commencement of the operation of dedicated LPG filling stations, the International LPG price was relatively stable and the six-month price adjustment mechanism worked effectively. The LPG price gaps between dedicated and non-dedicated LPG filling stations were generally maintained at a level acceptable to the market. About 60% of LPG vehicles used the dedicated stations for refilling and the rest used the non-dedicated stations. This ratio entailed a reasonable distribution of demand of services between the dedicated and the non-dedicated LPG filling stations. There were not long queues for refilling at the dedicated LPG filling stations.

     However, the International LPG price fluctuated sharply starting from September 2005.The non-dedicated LPG filling stations could follow the rise of international LPG price and adjusted their LPG retail prices accordingly. On the contrary, dedicated stations could only adjust their LPG prices once every six months, causing the LPG prices of dedicated stations lagging greatly behind the international LPG prices and resulting in a surge in demand for services at the dedicated stations that exceeds their supply capacity. It also caused very long queuing time for refilling at the dedicated LPG filling stations.

     To resolve the operational problems caused by the lagging of LPG ceiling prices of dedicated LPG filling stations behind the international LPG prices, the LPG ceiling price adjustment period was modified in March 2006 from once every six months to once every month, where the LPG ceiling price will be adjusted in accordance with the pricing formula and the International LPG price of last month.  After the introduction of the modified mechanism, the retail prices of LPG dedicated filling stations can follow more closely the International LPG prices, which help alleviate the long queuing time for refilling caused by the price lagging of dedicated stations. Since the introduction of monthly price adjustment mechanism in March 2006, around 60% to 70% of the LPG vehicles are refilled at the dedicated stations.   

     The dedicated LPG filling stations are now operating more smoothly under the current monthly price adjustment mechanism than the previous six-month price adjustment mechanism. However, when there is a substantial rise in the international LPG prices within a short period of time, the retail prices of dedicated LPG filling stations will still lag behind the international LPG price by one month because they can only be adjusted next month under the current mechanism. This will result in a surge in demand for filling services and longer queuing time for refilling at the dedicated stations within that month. We will monitor the situation and when necessary, study how to further optimise the existing price adjustment mechanism for dedicated LPG filling stations.

(6) The Electrical and Mechanical Services Department (EMSD) received 51 complaints concerning failures to operate all filling nozzles at the dedicated LPG filling stations in 2009-2013. The number of complaints received each year is set out in Annex 6.

     Upon receiving a complaint, EMSD will conduct an investigation to find out from the dedicated LPG filling station operator the cause of the complaint and request it to follow up and take remedial actions. Subsequently, EMSD will conduct surprise inspections to ensure the situation is improved.

(7) LPG prices of dedicated stations are set in accordance with the pricing formula in the contracts and are closely monitored by EMSD. They must follow the changes in the international LPG price and adjusted accordingly. Moreover, the detailed information on the international LPG price and LPG prices of dedicated stations are announced through press release each month, as well as posted on the EMSD's website to keep the public and the trade informed.

     In December 2013 the international LPG price increased, leading to an increase in the local auto-LPG price. However, the international LPG price has come down recently. The ceiling price of dedicated LPG filling stations in February 2014 has reduced by $0.7 per litre and will further reduce by $0.2 per litre in March.

     In considering taxi fare increase applications, the Government takes into full account changes in various cost and revenue items, including fuel costs. This arrangement has met and balanced the needs of different stakeholders and the actual operating conditions. Taxi fare level is subject to scrutiny by the Legislative Council.  Introducing a fuel surcharge on taxis outside the normal fare adjustment mechanism not only implies creating another fare increase channel apart from raising the flag fall and incremental charges, but also transfers fuel cost fluctuations directly to taxi passengers. As the introduction of a fuel surcharge involves complicated policy and operational issues, the Transport and Housing Bureau and the Transport Department are of the view that careful consideration is required. The Government will continue to listen to the views of the taxi trade and the public. Meanwhile, the Transport Department has commenced a study on the overseas and local experiences of implementing and not implementing a taxi fuel surcharge and the possible impacts of imposing such surcharge, with a view to mapping out the way forward in the light its outcome. We expect that the preliminary outcomes of the study will be ready by the end of this year.

Ends/Wednesday, February 26, 2014
Issued at HKT 17:26

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