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Following is a question by the Hon Steven Ho and a written reply by the Secretary for the Environment, Mr Wong Kam-sing, in the Legislative Council today (November 4):
Question:
Some members of the public have relayed to me that although international crude oil prices have dropped cumulatively by about 50 per cent since July 2014, the prices of products and services of oil-related businesses over the same period have been adjusted to varying extents. While some airliners lowered the passenger fuel surcharges levied by them last year by over 70 per cent, the retail prices of auto-fuel registered a reduction by merely 20 per cent over the past two years. Further still, fares of franchised buses even went up instead of going down, e.g., Kowloon Motor Bus Company (1933) Limited increased its fares for three times since 2011, with an average increase rate of 3.6 per cent, 4.9 per cent and 3.9 per cent respectively. In this connection, will the Government inform this Council:
(1) whether it has compared the respective impacts of hydrocarbon oil duty and the various operating costs on (i) determination of the retail prices of auto-fuel by oil companies and (ii) determination of passenger fuel surcharges by airliners; how the authorities will assess whether it is reasonable for the retail prices of auto-fuel and passenger fuel surcharges to have dropped by unequal magnitudes;
(2) whether it has reviewed if it is the case that at times when the operating costs of franchised bus companies fall with the oil prices, the basket of factors taken into account under the existing "Fare Adjustment Arrangement for Franchised Buses" and the mode of operation of fare adjustment formula not only have failed to work out a corresponding decrease in fares, but instead have given rise to an incessant increase in fares, thus rendering passengers unable to benefit from the falling oil prices; if it has conducted such a review, of the details; if not, the reasons for that; and
(3) whether it has considered lowering the duties for various types of hydrocarbon oil or adopting other appropriate measures, as so as to help alleviate the financial burden imposed on the public by the persistently high retail prices of petrol and the ever-increasing bus fares; if it has, of the details; if not, the reasons for that?
Reply:
President, the consolidated replies of the Environment Bureau and Transport and Housing Bureau to the above three questions are as follows:
(1) In a free market economy, retail prices of auto-fuels in Hong Kong are determined by oil companies having regard to commercial practices and their operating costs. When oil companies determine their prices, apart from the import prices of oil products, tax and the changes in operating costs (such as staff costs, transportation costs, costs of operating oil terminal, insurance, land premium, advertising costs, management costs, etc.) will also be taken into account. As for duty, hydrocarbon oil duty includes those the Government levies on unleaded petrol and Euro V diesel. The Government currently levies a duty of $6.06/litre on unleaded petrol, which has not been adjusted since 1998. For Euro V diesel, the Government adjusted the duty rate to zero since 2008 in order to lessen the financial burden of commercial vehicles.
Regarding other operating costs, since the relevant data are commercially sensitive information of oil companies, in a free market economy, the Government does not have the power to request the oil companies to provide these detailed information. Nonetheless, we appreciate the impact of the auto-fuels prices on the public and have been monitoring the changes in local retail prices of auto-fuels and comparing them with the trend movements of international oil prices (benchmarked against the Singapore free-on-board prices (i.e. Means of Platts Singapore) for unleaded petrol and motor vehicle diesel). We will urge the oil companies to promptly reduce their retail prices whenever there is room to do so in order to lessen the burden of the general public.
Passenger fuel surcharge "fuel surcharge" is part of the tariffs charged by airlines, enabling them to partially recover the increased operating costs caused by fluctuations in fuel prices. Fuel surcharge applications are approved by the Civil Aviation Department (CAD) in accordance with the Air Services Agreements.
Aviation fuel is one of the products refined from crude oil. Generally speaking, aviation fuel prices are affected by the underlying production costs and other factors and have no direct link with international crude oil prices. In approving fuel surcharge applications, the CAD will take into consideration airlines' justifications and other relevant factors, including the impact of the changes in aviation fuel prices on the operating costs of the airlines and market considerations. It will also consider whether the fuel surcharge is set at a reasonable level, including reference to the levels of fuel surcharge in the international aviation community. Generally speaking, the trend of fuel surcharge is in line with international crude oil prices.
All in all, retail prices of auto-fuels comprise import prices of oil products and other operating costs. However, these operating costs may not be adjusted in line with the change in oil prices. For fuel surcharge, it enables airlines to recover part of the increase in operating costs due to the fluctuation of fuel prices. At the same time, reference to the level of fuel surcharge in the international aviation community would also be considered when determining the surcharge. Since the considerations for the adjustments of the auto-fuels prices and passenger fuel surcharge are different, their magnitude of adjustments is not necessarily the same.
(2) and (3) The Government has been closely monitoring the impact of fluctuations in oil prices on public transport fares. There is no fuel surcharge for all public transport modes fuelled by oil products with regulated fares (including franchised buses). Fare adjustments have all along been made with reference to changes in costs and revenue in overall terms (instead of changes in fuel price alone) and they have no retrospective effect.
Insofar as franchised buses are concerned, the Government would, upon receipt of an application for fare increase from an operator, take into account a basket of factors in considering the need of any fare adjustment and the rate of adjustment in accordance with the Fare Adjustment Arrangement for Franchised Buses (FAA). Such factors include:
(i) outcome of a fare adjustment formula. The formula is (0.5 ¡Ñ Change in Nominal Wage Index for the Transportation Section) + (0.5 ¡Ñ Change in Composite Consumer Price Index (CCPI)) - (0.5 ¡Ñ Productivity Gain);
(ii) changes in operating costs and revenue since the last fare adjustment;
(iii) forecasts of future costs, revenue and return;
(iv) the need to provide the bus operator with a reasonable rate of return;
(v) public acceptability and affordability; and
(vi) quality and quantity of service provided.
Oil prices have fallen noticeably since the latter half of 2014. Although changes in fuel prices would inevitably affect the operating costs of franchised buses, their operating costs comprise various components apart from fuel cost. These include wage expense, maintenance and insurance, etc. The expenditures on various cost components (particularly labour cost) have basically been increasing in recent years. Meanwhile, the most recent application to increase bus fare was made in November 2013 when oil prices were at a high level. The application was considered and approved by the Chief Executive in Council on June 10, 2014 (oil prices were still high at that time) for implementation since July 6, 2014.
At the same time, the formula mentioned in (i) above would be applied on a quarterly basis. The formula reflects the macro-economic situation, particularly with respect to changes in the nominal wage for the transportation section and CCPI. Changes in fuel price are included in CCPI. If the formula outcome reaches -2 per cent, the Government would proactively initiate a fare review to decide whether fares should be adjusted downwards. The same basket of factors as mentioned above would be taken into account in such a review. The outcomes have remained above -2 per cent since the formula was introduced in 2006 owing to inflation. There has thus been no need to initiate a fare review.
Moreover, there is a passenger reward arrangement under the FAA. The arrangement would be triggered when the rate of return on average net fixed assets for an operator reaches or exceeds the threshold of 9.7 per cent as a result of changes in the overall costs and revenue. The operator would then have to share the profit above the threshold as fare concessions with the passengers on an equal basis. Some operators have been offering fare concessions to passengers under this arrangement in recent years. The concessions amounted to over $100 million in the past three years.
The Government will continue to closely monitor fluctuations in oil prices, and handle issues relating to bus fares in accordance with the established mechanism.
For the duties levied on auto-fuels, as mentioned in (1) above, the Government currently levies a duty of $6.06/litre on unleaded petrol, which has not been adjusted since 1998, while that for Euro V diesel is zero at the moment. Unleaded petrol is the fuel for private motor vehicles. Hong Kong is a small place with limited road space; we also have excellent mass transport network to meet the public needs. Fuel duty not only provides revenues to the Government, but also helps achieve the policy objectives to alleviate traffic congestions and air pollution caused by motor vehicles. To review the need for adjusting existing duty, the Government has to consider all aspects comprehensively since the review involves the principles of public finance management and will affect the society as well as the overall tax revenue of the Government. From environmental protection perspective, reduction of fuel duty may conflict with the Government's objective to alleviate pollution by encouraging the public to use public transportations and reducing the increase of private cars. The Government would therefore strike a balance among various factors such as tax revenue, environmental protection, transportation and the level of social acceptance when setting the rate of fuel duty.
On the other hand, the Government has endeavoured to maintain a stable fuel supply, encourage transparency and enhance competition by removing barriers to enter into the auto-fuels market. We also endeavour to improve the transparency of the prices of auto-fuels products to facilitate consumers to obtain sufficient information for making choices.
Ends/Wednesday, November 4, 2015
Issued at HKT 15:03
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