Implications of China Light & Power Company, Limited ' s corporate reorganisation
China Light & Power Company, Limited (CLP) announced on 8 September 1997 evening its intention to put to its shareholders a proposal to reorganise the Group under a new holding company (CLP Holdings) to be established in Hong Kong.
The proposal is in line with practices all over the world where many utility companies have established holding company structures to separate their regulated and non-regulated businesses.
In Hong Kong, utilities such as Hong Kong Electric and Hong Kong Telecom have also, at various times, adopted holding company structures.
CLP Holdings will have two distinct streams of businesses: (1) the electricity business in Hong Kong which is governed by the Scheme of Control (SOC); (2) overseas projects and other businesses in Hong Kong not governed by the SOC (the non-SOC business), which has been growing in recent years. The new organisation will address the different characteristics of the two businesses.
The Government was kept informed as appropriate.
The public announcement and the relevant press release (attached) were already sent to the Economic Services Panel.
This information paper explains the possible implications of the reorganisation, addressing areas that may be of particular interest to the Panel Members and members of the public :
2.1 CLP's Scheme of Control (SOC) business
The establishment of CLP Holdings will have no impact on our SOC business. The Company will continue to conduct its electricity-related business in Hong Kong, i.e. generation, transmission/distribution of electricity and customer services, in accordance with the SOC Agreement.
The reorganisation also will have no impact whatsoever on the implementation and maintenance of the SOC Agreement and the performance by CLP of its obligations under that Agreement. In the forthcoming SOC Review, CLP and Castle Peak Power Company Limited (CAPCO), both being signatories to the SOC Agreement, will engage in appropriate discussions with the Government.
2.2 Electricity-related services and tariff
The reorganisation will have no impact on our customers nor on tariffs charged. CLP's pledge to provide customers a reliable supply of electricity at a reasonable price continues. CLP has an on-going programme to enhance cost-effectiveness and efficiency in its operation so that customers can benefit from the savings achieved. This programme will continue.
The establishment of the holding company, which reinforces the clear delineation of the SOC and non-SOC businesses, enhances transparency of the Compay's operation for all concerned: the customer, the Government and the public.
As to the speculation that the reorganisation will render it easier for CLP to revise the tariff, it has to be pointed out that this is simply not the case. The fact is that non SOC power projects and other business undertakings, such as property development, have never been taken into account in the SOC business, and hence have never played any part in the tariff formula. The setting of tariff and its revision will not be affected in any way by the reorganisation.
2.3 Cost of reorganisation
The reorganisation is estimated to cost $370 million, primarily through the payment of capital duty. This expenditure will be solely borne by CLP's shareholders and will be drawn from the reserves as reflected in the balance sheet.
2.4 Commitment to Hong Kong
CLP Holdings will be incorporated in Hong Kong. The use of an overseas jurisdiction such as Bermuda was considered. This would have reduced capital duty and made the reorganisation simpler and quicker. However, given CLP's century long presence in Hong Kong and its status as a major electric utility, serving the public of Hong Kong, it was felt that it is important to demonstrate the company's continued commitment to Hong Kong by retaining domicile here in the SAR.
22 September 1997