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Following is a question by the Hon Wong Kwok-hing and an oral reply by the Secretary for the Environment, Mr Edward Yau, in the Legislative Council today (May 27):
Question:
It is learnt that currently there are only three suppliers supplying piped liquefied petroleum gas (LPG) to 15 public rental housing (PRH) estates, and the way they set the retail prices of LPG has all along been criticised to be lacking transparency. Due to insufficient market competition, the retail prices of LPG set by various suppliers and the extent of price adjustments they made are often very close to one another. Moreover, some residents of PRH estates and private housing estates have relayed to me that the retail prices of piped LPG were significantly higher than those of auto LPG, and the situation of quick-in-raising and slow-in-reducing often occurred when adjustments were made according to the import prices of LPG. In this connection, will the Government inform this Council whether:
(a) it knows the average import prices and average retail prices of piped LPG and auto LPG as well as the respective percentage changes in such prices in each quarter of the past three years; and whether it has explored why the retail prices of piped LPG are significantly higher than those of auto LPG;
(b) it will make reference to the arrangement of the Government signing an Information and Consultation Agreement with the Hong Kong and China Gas Company Limited, and enter into similar agreements with the piped LPG suppliers, so as to regulate the retail prices of piped LPG and enhance the transparency in price setting, in order to protect consumers’interests; and
(c) the Environment Bureau will provide support to users of piped LPG to assist them in switching to using town gas; if so, of the number of cases last year of users switching to using town gas?
Reply:
President,
(a) Price adjustments of piped LPG and auto LPG of dedicated stations are determined according to different pricing mechanisms and with reference to different timeframes. In addition, as the market scale, mode of operation and cost structure (which includes mainly the expenditure on capital investment, storage, operation and maintenance etc.) of piped LPG and auto LPG are also different, their prices cannot be directly compared.
In terms of changes in the price figures over time, the import price of LPG as provided by the Census and Statistics Department has fallen by about 3% in the past three years. The price of piped LPG has also dropped by about 3% during the same period. Not only is the magnitude of decrease similar, in most of the quarters the price of piped LPG has actually increased to a lesser extent than the import price of LPG. This is shown in the Annex, particularly in the quarters between 2007 and 2008. It can be seen that the decrease in selling prices was more favourable to consumers. Yet there were some variation in some quarters. I will explain in more details when I come to the part of price adjustment later.
(b) Fuel prices in Hong Kong are determined by individual companies having regard to commercial practices and their operating costs. In a free market economy, the Government does not have the power to mandate fuel prices. Nevertheless, the Government appreciated the impact of LPG prices on the local economy, and encouraged the industry to increase transparency in their pricing.
Regarding the price adjustment of domestic LPG, Shell Hong Kong Limited (Shell), one of the major LPG suppliers in Hong Kong, has voluntarily adopted a pricing mechanism since 1999 to review their prices regularly so as to enhance transparency in their pricing. In order that the setting of LPG price will follow more closely LPG price movements in the international market, Shell currently reviews their prices every three months (i.e. in the end of January, April, July and October), and reviews their operational costs every twelve months. In each review with a view to setting LPG price, the company will forecast the import prices of the coming three months in light of the latest international LPG price information, and make positive or negative adjustment for any variation between the actual import prices and the import prices as forecasted in the previous review. Under this mechanism, the Government also monitors whether the adjustment in local price of domestic LPG is reasonable in light of the movements in international LPG prices and local import prices. Shell will, after each price review, announce and explain to the public the outcome of the review. Although other oil companies have not established any mechanism to regularly and openly review LPG price and release relevant information, according to our information, the adjustment made by other oil companies in the price of piped LPG has been close to that of Shell. We consider that the current price review mechanism of domestic LPG has helped achieve the purpose of increasing the transparency in their pricing.
All LPG suppliers providing services to public housing estates are required to enter into LPG supply contracts with the Housing Authority for building and maintaining the LPG compound as well as supplying and distributing LPG to users. According to the contracts between the Housing Authority and LPG suppliers, the suppliers cannot restrict users in public housing estates to use the piped LPG supply. Instead, other forms of fuels such as portable bottled LPG from any source may be used as the users see fit. To ensure that the users in public housing estates will not be required to pay unreasonable prices for the use of central gas supply, the Housing Authority has, when entering into LPG supply contracts with the suppliers, stipulated in the contracts that the LPG suppliers shall not levy on the users in public housing estates any charge higher than that in the prevailing private market.
(c) Currently, it is normally up to the developers or representatives from the housing estates (including Housing Authority) to decide on their gas suppliers and forms of fuels, on a case by case basis. In general, the gas suppliers enter into gas supply contracts with the developers or representatives from the housing estates for a period of 10 to 20 years. If the gas supply contracts expire, the representatives from the housing estates are free to choose their gas suppliers or switch to the other forms of fuels, provided that the relevant safety requirements are complied with.
According to the records of Hong Kong and China Gas Co. Ltd., there was only one private housing estate in Hong Kong (involving 272 premises) that switched their piped gas supply from LPG to town gas in the last year. A whole host of cost and technical factors have to be taken into consideration by the relevant housing estates in conducting such switch:
* all LPG appliances have to be modified to cater for the utilisation of town gas, and some of them may have to be replaced owing to the lack of required parts for modification;
* there may be interruptions of gas supply during the period of conversion works of the gas supply system;
* if an estate is not covered by the town gas supply network, connecting pipes to the town gas network have to be laid; and
* gas main, service pipes and installation pipes in the estate may need to be replaced.
Ends/Wednesday, May 27, 2009
Issued at HKT 16:31
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