For discussion
FCR(97-98)118
on 30 March 1998

ITEM FOR FINANCE COMMITTEE

HEAD 44 - ENVIRONMENTAL PROTECTION DEPARTMENT
Subhead 700 General other non-recurrent

Members are invited to approve a new commitment of $14 million for engaging consultants to conduct a study on the Trade Effluent Surcharge scheme.

PROBLEM

We need to reassess the discharge factors for six existing trades under the Trade Effluent Surcharge (TES) sScheme. We also need to study whether we should expand the scheme to cover seven additional trades identified for possible inclusion in the scheme. A list of the six existing trades and the seven additional trades is at Enclosure 1.

PROPOSAL

2. We propose to create a commitment of $14 million for engaginge consultants to conduct a study on the TES sScheme to examine whether the scheme should cover seven additional trades and to reassess the discharge factors for six existing trades.

JUSTIFICATION

3. When introducing the sewage charging scheme in April 1995, we undertook to review the TES scheme a year after its implementation. In 1996, we commissioned a consultant to carry out the review. The consultant's findings have revealed that, of the 210 000 businesses estimated to be operating in Hong Kong, the TES scheme only covers some 12 000. This is less than 6% of the total number of businesses in the territory. In terms of volume of effluent discharged, they represent 30 to 40% of the trade waste treated. While many of the other trades under the scheme do not produce effluents at strength higher than that of the domestic sewage, it is likely that the current scheme has not covered some strong effluent producers. The consultant has identified seven trades, including three "strong candidates", for possible inclusion in the current scheme. He recommended that we should carry out a comprehensive sampling and data analysis before making a decision on whether to include these trades.

4. It is a matter of equity that we should consider for possible inclusion into placement under the scheme trades which are discharging effluents at a strength higher than that of domestic sewage but which are not currently included. However, the trades concerned are likely to object to any such proposal. The three "strong candidates" identified by the consultant have already raised objections during our public consultation on the final report in May/June 1997. This underlines the importance of obtaining sufficient evidence before making any proposal to extend the coverage of the scheme to these trades. A comprehensive sampling and data analysis is the most appropriate and scientific method of assessing whether we should bring them under the scheme.

5. In addition, the consultant has found out during the review that the observed discharge factors of six existing paying trades are below the assigned value. This means that the assigned values for these trades may not be reflect accurately reflecting the TES charges that they should be paying under the scheme. The consultant has recommended that we should carry out further investigations for these trades. Like the proposed study on the additional trades, this requires an equally comprehensive sampling and data analysis in order to provide sufficientprobative evidence to support any proposed changes which may have significant financial consequences.

6. The proposed timetable for the study is as follows -

Consultant selection process	May 1998
Award of consultancy	September 1998
Completion of study	December 1999

7. The proposed study per se has no impact on the TES rates for the existing trades.

FINANCIAL IMPLICATIONS

8. We estimate the cost of the study to be $14 million, made up as follows -

	$ million
(a) Consultants' staff costs	3.0
(b) Costs of survey, effluent sampling and laboratory testing	8.3
(c) Contingency (10%)	1.2 _____
Sub-total	12.5
Inflation allowance	1.5 _____
Total	14.0 _____

A breakdown of the estimated consultants' staff costs is at Enclosure 2. We will engage the consultants on a lump sum basis.

9. Subject to approval, we plan to phase the expenditure as follows -

Year	$ million
1998-99	6
1999-2000	8 ______
Total	14 ______

10. Subject to Members' approval, we will provide supplementary provision required in 1998-99 through delegated authority. The proposal has no additional recurrent financial implications.

BACKGROUND INFORMATION

11. The sewage charging scheme aims to improve the protection of our environment. It is based on the Polluter Pays Principle which requires that all those who create pollution pay their proportionate share of the costs of cleaning it up. The scheme comprises two components - a sewage charge (SC) and a TES. SC is a general charge payable by all water consumers discharging waste water into the public sewerage system and reflects the costs for collecting and treating sewage at domestic strength. Certain trades and industries discharge effluents at a strength higher than that of domestic sewage. As a result, a TES which reflects the additional costs of treating this stronger sewage is payable by 30 trades and industries. We calculate the charges according to the volume and strength of wastewater discharged.

12. We have designed the sewage charging scheme to be administratively simple by minimising the different TES rates that individual dischargers would have to pay. This is in line with the general consensus to keep administrative costs to a minimum.

13. We measure the strength of effluent by the Chemical Oxygen Demand (COD) readings of wastewater. The higher the COD value, the higher the treatment cost and hence the TES rate. For simplicity, the scheme assigns an average COD value to a trade to represent the strength of wastewater discharged by that particular trade. We determine the volume of effluent discharged based on the metered water supply data. We recognise that, for some trades, not all the water supplied is discharged directly into the sewers because some water is used in products or lost to the atmosphere through evaporation. We therefore employ a system of discharge factors to allow for such losses.

Planning, Environment and Lands Bureau
March 1998

Enclosure 1 to FCR(97-98)118

List of six existing Trade Effluent Surcharge-paying trades

1. Dairy products

2. Bakery products

3. Vermicelli, noodles and similar farinaceous product

4. Cocoa, chocolate and sugar confectionery

5. Soy and other sauces

6. Soft drinks and carbonated waters industries

List of seven additional trades for possible inclusion in current sewage charging scheme

1. Barber and beauty shop

2. Garage

3. Printing

4. Medical, dental and X-ray laboratory

5. Petrol filling station

6. Market

7. Tobacco manufacturing

Enclosure 2 to FCR(97-98)118

Breakdown of the estimate for consultants' staff costs

Consultants' staff cost			Estimated man months	Average MPS salary point	Multiplier factor	Estimated fee ($million)
(a)	Supervision of Survey	Professional Technical	7 9	40 16	3.0 3.0	1.24 0.54
(b)	Design of Surveying Programme	Professional Technical	2 1	40 16	3.0 3.0	0.36 0.06
(c)	Data Compilation	Professional Technical	2 1	40 16	3.0 3.0	0.36 0.06
(d)	Preparation of Report	Professional Technical	2 1	40 16	3.0 3.0	0.36 0.06
						_______
			Total consultants' staff cost			3.04
						_______

Notes

1. A multiplier factor of 3 is applied to the average Master Pay Scale (MPS) point to arrive at the full staff costs including the consultant's overheads and profit, as the staff will be employed in the consultant's offices. (At 1 April 1997 MPS point 40 = $59,210 per month and MPS point 16 = $19,860 per month.)

2. The figures given above are based on estimates prepared by the Director of Environmental Protection. We will only know the actual man months and the fees when we have selected the consultants through the usual competitive lump sum fee bid system.