PLC Paper No. FC 164
(These minutes have been
seen by the Administration)

Ref : CB1/F/1/2

Finance Committee of the Provisional Legislative Council

Minutes of the meeting held at Conference Room A of the Legislative Council Building on Thursday, 23 April 1998, at 11:00 am

Members present :

Hon Ronald ARCULLI, JP (Chairman)
Hon Henry WU (Deputy Chairman)
Hon WONG Siu-yee
Hon James TIEN Pei-chun, JP
Hon David CHU Yu-lin
Hon Edward HO Sing-tin, JP
Hon NG Leung-sing
Prof Hon NG Ching-fai
Hon Eric LI Ka-cheung, JP
Hon LEE Kai-ming
Hon Mrs Elsie TU, GBM
Hon Mrs Selina CHOW, JP
Hon Mrs Peggy LAM, JP
Hon NGAI Shiu-kit, JP
Hon CHEUNG Hon-chung
Dr Hon Mrs TSO WONG Man-yin
Hon LEUNG Chun-ying, JP
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon MOK Ying-fan
Hon HUI Yin-fat, JP
Hon CHAN Yuen-han
Hon CHAN Wing-chan
Hon CHAN Kam-lam
Hon TSANG Yok-sing
Hon CHENG Kai-nam
Hon Frederick FUNG Kin-kee
Hon Andrew WONG Wang-fat, JP
Dr Hon Philip WONG Yu-Hong
Hon Kennedy WONG Ying-ho
Hon Howard YOUNG, JP
Dr Hon Charles YEUNG Chun-kam
Hon YEUNG Yiu-chung
Hon IP Kwok-him
Hon Bruce LIU Sing-lee
Hon LAU Kong-wah
Hon LAU Wong-fat, JP
Hon Mrs Miriam LAU Kin-yee, JP
Hon Ambrose LAU Hon-chuen, JP
Hon CHOY Kan-pui, JP
Hon CHENG Yiu-tong
Dr Hon TANG Siu-tong, JP
Hon Timothy FOK Tsun-ting
Hon KAN Fook-yee
Hon NGAN Kam-chuen
Hon LO Suk-ching
Dr Hon LAW Cheung-kwok
Hon TAM Yiu-chung, JP
Hon CHOY So-yuk

Members absent :

Hon HO Sai-chu, JP
Dr Hon Raymond HO Chung-tai, JP
Dr Hon David LI Kwok-po, JP
Hon Allen LEE, JP
Hon Henry TANG Ying-yen, JP
Hon YUEN Mo
Hon MA Fung-kwok
Dr Hon LEONG Che-hung, JP
Hon CHAN Choi-hi
Hon CHIM Pui-chung
Hon Paul CHENG Ming-fun, JP

Public officers attending :

Miss Denise YUE, JP

Secretary for the Treasury

Mrs Carrie LAM, JP

Deputy Secretary for the Treasury

Mr Stephen IP, JP

Secretary for Economic Services

Mr Leo KWAN, JP

Deputy Secretary for Economic Services

Mr Eric JOHNSON

Principal Assistant Secretary for Economic Services

Mrs Lessie WEI, JP

Director of Agriculture and Fisheries

Mr Joseph SHAM

Assistant Director of Agriculture and Fisheries

Mr S Y TSUI, JP

Director of Marine

Dr K H MAK

Consultant (Community Medicine) of Department of Health

Mrs Rachel CARTLAND, JP

Assistant Director of Social Welfare

Dr Malcolm BROOM

Principal Environmental Protection Officer of Environmental Protection Department

Clerk in attendance :

Mrs Vivian KAM

Assistant Secretary General 1 (Acting)

Staff in attendance :

Ms Anita SIT

Senior Assistant Secretary (1)8

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Item No. 1 - FCR(98-99)13
LOAN FUND
HEAD 262 - PRIMARY PRODUCTS
New Subhead "Kadoorie Agricultural Aid Loan Fund - loans to mariculturists"
HEAD 170 -SOCIAL WELFARE DEPARTMENT
Subhead 787 Grant to the Emergency Relief Fund (block vote)

The Chairman welcomed members to the special meeting, which had been called to consider a proposal from the Administration for providing financial assistance to mariculturists affected by the recent red tide. The Secretary for Economic Services (SES) apologized for the short notice for the meeting.

2. Members considered that the recent red tide had significant and severe impact on local mariculturists. They were concerned whether the financial assistance to be provided through the Emergency Relief Fund (ERF) and the Kadoorie Agricultural Aid Loan Fund (KAALF) would be sufficient to enable mariculturists to re-establish their business. Apart from financial assistance, members also enquired about measures for improving the monitoring of red tides and increasing the productivity of mariculture in Hong Kong. Members also made reference to the written representation from the Federation of Hong Kong Aquaculture Associations, which had been circulated to members vide PLC Paper FC151 dated 22 April 1998. Concerns raised by members and response from the Administration are summarized as follows.

Grants under the Emergency Relief Fund

3. Responding to a member's enquiry on when the existing parameters for the ERF were set, the Assistant Director of Social Welfare (AD/SW) advised that the ERF payment schedule was reviewed comprehensively in March 1996 and the resultant proposal was approved by the Finance Committee on 28 June 1996. The relevant category of grants on this occasion, i.e. primary producer grants for loss of crops or livestock and fish, was covered in that review, and the rates of grants were revised annually to take into account changes in the cost of living; the latest revision was made in April 1998.

4. Some members considered that given the severe loss suffered by mariculturists, the maximum grant of $11,250 for each eligible mariculturist was insufficient. They pointed out that the basis of the maximum grant for loss of mariculture fish, i.e. $526 per m² for cost of basic material inputs up to a maximum of $10,520 for 20m², was unrealistic as most mariculturists were operating fish farms much larger than 20m². In response, the Director of Agriculture and Fisheries (DAF) explained that the ERF grants were intended to provide emergency financial relief and they were not compensation for the loss suffered by mariculturists. The size of the fish farms was therefore not relevant to the size of the grants. The Assistant Director of Agriculture and Fisheries estimated that about 57% of the existing mariculture licence holders met the size criterion for the maximum grant.

5. Some members maintained that the circumstances on this occasion were extraordinary since a large proportion of the fish in fish culture zones throughout Hong Kong was killed and nearly all local mariculturists were affected. Such an extent of impact could not have been foreseen when the ERF payment schedule was reviewed in 1996. They therefore requested the Administration to consider relaxing the maximum grant limit. AD/SW responded that the established ERF payment rates had all along been adhered to on other occasions of natural disasters since the establishment of the Fund in the 1960s. It would not be reasonable to alter the established rates on account of the particular circumstances of any incident of natural disasters. SES added that the ERF grants served only to provide emergency relief, and the loan assistance under the KAALF was a more important source of financial assistance for mariculturists.

6. In response to a member on the reason for not resorting to the ERF in the recent outbreak of avian influenza, AD/SW explained that in accordance with provisions in the Emergency Relief Fund Ordinance (Cap. 1103), the ERF was to provide financial relief in cases of natural disasters. In the recent case of avian influenza, the legal advice was that the direct cause for the financial loss of poultry traders and workers was the Government's decision to slaughter chickens and thus the incident could not be considered as a natural disaster. On the other hand, the recent incident of red tide was considered a natural disaster as the hardship suffered by mariculturists was caused by changes in water temperature and other climatic factors which led to a bloom of algae in sea water.

Loan assistance under the Kadoorie Agricultural Aid Loan Fund

7. Members considered that the loan assistance under the KAALF should be sufficient to enable mariculturists to re-establish their business. Some members doubted if the proposed maximum loan of $100,000 to be granted on an unsecured basis was adequate for this purpose, and enquired if it could be increased to $200,000. The Administration responded that in order to assist affected mariculturists to re-establish their business as soon as possible, the Administration had already proposed certain modifications to the existing loan arrangements in consideration of the exceptional severity of the red tide and the consequent hardship suffered by mariculturists. These included increasing the maximum unsecured loan amount by $20,000 to $100,000 for each eligible applicant, lowering the annual interest rate of loans from 6% to 2%, and lengthening the period before repayment from three months to 18 months from the date of draw down. Apart from these modifications, the Administration would also recommend to the KAALF Committee a flexible approach in handling loan applications. DAF, who was the chairman of the Committee, elaborated on such flexibility by giving the examples that small vessels, which were normally not accepted as collateral in the past, might be accepted on this occasion; genuine mariculturists who operated licensed rafts but without their own mariculture licences would be eligible for loan assistance; and the loans previously granted under the KAALF and not yet repaid would not be counted toward the maximum loan limits to be granted on this occasion. SES and DAF stressed however that while a flexible approach would be adopted, the loans were public money and thus must be disbursed prudently.

8. Responding to a member's enquiry on whether the requirement of a guarantor for unsecured loans would apply on this occasion, DAF said that this used to be a basic requirement for unsecured loans granted under the KAALF. However, in consideration of the fact that nearly all local mariculturists were affected and some might have genuine difficulty in finding a qualified guarantor other than another mariculturist applying also for a loan under the KAALF, the Administration would recommend waiver of this requirement to the KAALF Committee if the circumstances of the applicants warranted. As regards arrangements for overdue repayment, DAF advised that there was already established procedure for this situation. If the fish farm concerned was found operating under genuine difficulty, the KAALF Committee would consider revising the loan repayment schedule as appropriate.

9. Some members opined that instead of emphasizing on flexibility, which was susceptible to disputes, the maximum of unsecured loans should be simply increased to $200,000. SES reiterated that the loan assistance involved public money and thus must be granted with reasonable certainty that the loans would and could be repaid by borrowers. On account of this, he affirmed that the $100,000 unsecured loan amount was the limit although a degree of flexibility in handling the applications for secured loans could be allowed. He stressed that the Administration had tried to strike the best balance among all relevant considerations in coming up with the present proposal.

10. In reply to a member's enquiry about the average financial requirements of mariculturists for re-establishing their business, DAF advised that the main expenses would be on the purchase of fish fry to restock the fish farms and feed. It was estimated that most mariculturists could restock their farms and secure the supply of feed for several months with a capital cost of around $100,000. In deciding the size of loans, the Agriculture and Fisheries Department (AFD) would consider, inter alia, the size of fish farms, the market price of fish fry and fish feed and the variety of fish used to be cultured at the fish farms concerned.

11. A member pointed out that it took some time for the recovery of the sea bed condition before mariculturists could restock their farms, and enquired if the proposed loan repayment period could be extended. SES confirmed that the option of repaying the loans 18 months after the date of draw down had already taken into account the fact that almost the entire fish stock in the affected farms had been depleted and the average time needed to culture fish to marketable size was 18 months. He remarked that the KAALF was a standing fund. After repaying the loan for re-establishing their fish farms on this occasion, mariculturists could apply for loans again to develop or enhance the specie composition of their fish farms.

12. As to whether the proposed injection of $200 million into the KAALF would be sufficient to meet the demand for loans from affected mariculturists, SES said that based on past experience, the proposed injection amount should be sufficient. In the unlikely event that funds were inadequate, the Administration would come back to the Finance Committee for a supplementary provision. He assured that no eligible mariculturists would be turned away due to the lack of funds.

13. A member opined that the adequacy of funds should be considered in relation to the scale of loss suffered by mariculturists, and he enquired about the quantitative figures in this regard. SES remarked that what was at issue was not compensation for the loss of mariculturists. The primary objective of the present proposal was to help mariculturists to re-establish their business and restock their farms, and that was also the basis for deciding on the amount of loans to be granted to individual mariculturists. DAF said that there could be no agreed basis for estimating the amount of loss. To illustrate this point, she said that the estimate made by mariculturists was 5.85 million catties of fish and $307.5 million in money terms, hence about $50 per catty on average. First hand information available to the Administration was that since 10 April 1998, the total amount of dead fish removed from Hong Kong waters by the Government was 567 tonnes.

14. A member nevertheless remarked that there was a need for the Administration to review both the criteria and the mechanisms for providing financial assistance to persons affected by similar disasters, and make recommendations to the Committee when appropriate.

Waiver of mariculture licence fees

15. Some members considered that the request of affected mariculturists for waiving the mariculture licence fees for three years should be considered compassionately as some mariculturists operating large fish farms had to pay substantial licence fees. SES maintained that the request could not be acceded to as the licence fees were to recover the cost of processing the licence applications. In reply to a member, DAF advised that the licence fees were calculated on the basis of $7.8 per m² of fish raft area, and presently 77% of the mariculturists in Hong Kong were operating with less than 300m² of rafts.

Monitoring and warning system

16. On measures to assist mariculturists other than financial assistance, SES agreed with members that the Administration should work on improving the existing monitoring and warning mechanisms in respect of red tides. He advised that DAF had set up a working group comprising local experts and representatives from relevant Government departments to examine various monitoring measures including satellite monitoring, air patrol using helicopters, water sample tests etc. Recognizing that Hong Kong waters were interfaced with the Mainland waters, the Administration would continue to keep close liaison with the Guangzhou municipal government to ensure early mutual warning. DAF supplemented that since the recent red tide was detected, the Administration had been actively soliciting advice from experts worldwide. Apart from enlisting the participation of local experts in the working group, which had already met once and would meet again shortly, she had also contacted overseas experts for advice. In reply to a member, DAF acknowledged that the Administration had not kept special liaison with tertiary institutes nor sponsored research on the red tide phenomena. However, AFD all along had been monitoring red tides, with two dedicated vessels patrolling Hong Kong waters to observe the water colour and take samples from fish farms. A mutual warning mechanism between AFD and mariculturists had also been established. At the request of members, SES agreed to consider the request of mariculturists for setting up an inter-departmental emergency supporting group with the participation of mariculturists, and report to the relevant Panel on the review of the monitoring and warning mechanisms in respect of red tides in due course.

Admin

17. Some members opined that the Administration should take this opportunity to expeditiously clear the sea bed of the fish culture zones and consider developing fish fry culture in Hong Kong. In response, DAF advised that before the red tide incident, AFD had already started planning for the clearance of the sea bed and this would be considered by the abovementioned working group shortly. As for fish fry culture, Hong Kong had no established institution for this purpose. Local mariculturists purchased imported fish fry or caught them in Hong Kong waters. She however remarked that AFD would continue to conduct researches with a view to improving the quality and effectiveness of marine fish culture in Hong Kong, and would keep mariculturists informed of the research results. Taking note of a members’ suggestion of setting up a research institute dedicated to mariculture, SES said that the Administration was open to suggestions on improving the mariculture environment and methods and would seek funds for warranted researches.

18. The Committee approved the proposal.

19. The Committee was adjourned at 12:55 pm.

Legislative Council Secretariat
16 July 1998