For discussion FCR(96-97)85
on 13 December 1996

ITEM FOR FINANCE COMMITTEE

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

Members are invited -

1. to approve an increase in the rates of capital grants payable to livestock farmers as set out in Enclosure 1;
2. to approve the application of the new rates to all applications from Control Areas 18 to 25 received before 31 December 1996; and
3. to note the updated financial implications in respect of the ten-year Livestock Waste Control Programme (1987-88 to 1996-97) at an estimated cost of $1,459.29 million due to the effect of the proposed increase in rates and a reduction of the number of applications.

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PROBLEM
PROPOSAL
JUSTIFICATION
FINANCIAL IMPLICATIONS
BACKGROUND INFORMATION
Rates of Capital Grant for Livestock Farmers Affected by the Livestock Waste Control Programme
Financial Implications for Capital Grant under the Livestock Waste Control Programme (As at 30 September 1996)

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PROBLEM

The existing rates of capital grants to livestock farmers under the Livestock Waste Control Programme (LWCP) are inadequate to meet the increased cost of waste treatment facilities.

PROPOSAL

2. We propose to increase the rates of capital grants by some 19% as set out in Enclosure 1. We also propose to apply the new rates to all eligible applications from Control Areas 18 to 25 received before the closing date of application on 31 December 1996. This includes those applications received prior to the approval of the new rates by Members.

JUSTIFICATION

3. Under the LWCP, livestock farmers who wish to continue their business in controlled areas have to comply fully with the statutory environmental standards. They may apply for financial assistance in the form of a capital grant and low interest loan to install appropriate waste treatment facilities in order to comply with the control regulations. The capital grants aim to meet half of the essential capital costs for installing waste treatment facilities. Up to 31 December 1995, which was the deadline for submission of capital grants applications by farmers in all areas except Control Areas 18 to 25 (the last areas to come under control under LWCP), a total of 281 farmers had applied and were assessed to be eligible for receiving capital grants.

4. We review the rates of the capital grants periodically. Eligible farmers from Control Areas 18 to 25 have complained that the rates approved by Members on 10 December 1993, vide FCR(93-94)106, are inadequate to meet the cost of waste treatment facilities. In response, we undertook to review the rates to maintain the financial viability of the farmers to pay for the capital costs involved in installing appropriate waste treatment facilities.

5. Following such a review, we propose to increase the rates for capital grants by some 19 percent to take into account increases in construction costs since the last revision. The proposed increase is based on the changes in the Building Cost Index¹ between August 1993 to August 1996. As we did not commence the disbursement of the first instalment of the capital grants, paid in two instalments, until September 1996, and no farmers have yet received the full payment, we propose to apply the new rates uniformly to all applications from eligible farmers in Control Areas 18 to 25. This will include those eligible farmers who have already submitted their applications or received the first instalment. This also entails an adjustment payment to farmers who have received the first instalment at the existing rates.

6. Up to 30 November 1996, we have received 144 applications from eligible farmers in Control Areas 18 to 25. Of these, we have disbursed the first instalment of the capital grants to 13. We anticipate that there would be further applications received from this date and expect that a total of some 300 eligible farmers in Control Areas 18 to 25 would apply for capital grants before the deadline of 31 December 1996. Compared with our estimate made in 1993, this represents a drop of about 80 eligible applications. Based on the proposed increase in rates, the Director of Environmental Protection (DEP), who is the vote controller, estimates the total expenditure on capital grants for the full LWCP, including the adjustment payment to the first instalment that we have disbursed to farmers in Control Areas 18 to 25, to be $91.81 million. Details of this estimate are at Enclosure 2.

FINANCIAL IMPLICATIONS

7. The updated financial implications for implementation of the LWCP are as follows -

Note - Figures in brackets denote the estimated costs in FCR(95-96)88 noted by Members on 8 December 1995.

8. As regards sub-paragraph 7(d) above, we estimate the financial implications on the basis of the proposed rates in Enclosure 1 and the take-up rates set out in paragraph 6 above. The financial implications of the other items in paragraph 7 remain the same as those set out in FCR(95-96)88. There is a reduction in total cost for the LWCP from $1,482.30 million to $1,459.29 million.

BACKGROUND INFORMATION

9. We introduced the LWCP in 1987 to ensure proper treatment and disposal of livestock waste following the amendment of the Waste Disposal Ordinance (WDO). To achieve this objective, the programme prohibits livestock keeping in the Urban Council areas and new towns in the New territories. It imposes statutory environmental standards in the remaining parts of the territory.

10. On 15 March 1988, Members approved a commitment of $22.2 million for paying capital grants to livestock farmers affected by the LWCP under FCR(87-88)205.

11. On 24 May 1991, Members approved an increase in the rates of capital grants together with an increase in commitment from $22.2 million by $39.69 million to $61.89 million under FCR(91-92)17. However, we had to hold in abeyance the processing of applications pending the completion of the review of the LWCP and amendment of the WDO.

12. On 10 December 1993, Members approved a further increase in the rates of capital grants payable to livestock farmers and approved an sincrease in commitment from $61.89 million by $52.93 million to $114.82 million under FCR(93-94)106. Following Members’ approval of the increase and after the amendment of the WDO in 1994, we resumed the processing of applications for capital grants using the newly approved rates for all eligible applications, including those received prior to the approval of the increase.

13 On 8 December 1995, Members noted the updated financial implications of the Livestock Waste Control Programme (1987-88 to 1996-97) at an estimated cost of $1,482.30 million under FCR(95-96)88.

Planning, Environment and Lands Branch
December 1996

1 -- The Building Cost Index is an index published by the Director of Architectural Services which accounts for movements in costs of material and labour in construction works.

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Enclosure 1 to FCR(96-97)85

Rates of Capital Grant for Livestock Farmers Affected by the Livestock Waste Control Programme

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Enclosure 2 to FCR(96-97)85

Financial Implications for Capital Grant under the Livestock Waste Control Programme (As at 30 September 1996)

N.B.

(a) New rates of capital grant apply only to Control Areas 18 to 25

(b) Total financial implications (1987-88 to 1997-98) = $91.81 million

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