LCQ5 : Negotiation on price and supply quantities of Dongjiang water

Following is a question by the Hon Fred Li Wah Ming and an oral reply by the Secretary for Works, Mr Lee Shing-see, in the Legislative Council meeting today (January 16) :


In accordance with the 1989 Water Supply Agreement signed between the Hong Kong Government and the Guangdong Authority, even if the actual quantity of water supplied is smaller than the agreed quantity, the water charges payable by Hong Kong are still to be determined on the basis of the agreed quantity. It has been reported that last year a large amount of potable water was discharged into the sea due to overflowing of reservoirs, resulting in wastage of potable water and public funds. In this connection, will the Government inform this Council:

(a) of the quantity of potable water discharged into the sea in the past three years due to overflowing of reservoirs, and its value as calculated by the unit price of water supplied;

(b) of the electricity charges and other operational expenses for the conveyance of potable water from Guangdong, calculated by the quantity of water supplied after deducting the quantity discharged into the sea, and how these figures compare to the actual expenses concerned, in each of the past three years; and

(c) whether it has striven to negotiate with the Guangdong Authority for reducing the price of water; if it has, of the result?


Madam President,

(a) The major reasons leading to overflow from reservoirs are the intensive and heavy local rainfall coupled with the migration of industry northwards resulting in the drop in demand growth. Moreover, the storage capacities of our reservoirs are limited.

When fixing these quantities in 1989, we needed to ensure that Hong Kong would be free from shortage of water supply even in severe drought years in order to avoid undermining Hong Kong's economy and the international status. It could also avoid the hardship of water shortage as in the 60's.

However, starting in the 90's, the industry in Hong Kong moved northwards. The industrial consumption has dropped significantly. Consequently, the actual water consumption was lower than the forecast. When we were aware that the demand growth was dropping, we have already started immediately to liaise with the Guangdong side to reduce the supply quantities. After extensive negotiations, the Guangdong side has agreed in 1998 that the annual increase in supply quantities from 1998 to 2004 could be reduced by 20 million cubic metres (mcm). As a result, the total supply quantities in these seven years would be reduced by 560 mcm cumulatively. Moreover, according to the original agreement, we would have to draw the ultimate quantities of 1,100 mcm per year in 2008. The Guangdong side has also agreed that the time of reaching this ultimate capacity could be suitably deferred and the supply quantities beyond 2004 would be subject to further negotiation.

As regards rainfall, Hong Kong had been undergoing successive spells of heavy rainfall for ten years, starting from 1992 to 2001. Although the 1999 annual rainfall was slightly lower than the long-term average, the rainfall in August and September of that year was very heavy and intensive. In 2000 and 2001, the annual rainfall was also much higher than the long-term average. Owing to the limited storage capacity of local reservoirs and the need of maintaining a certain amount of storage at all times to meet the demands in case of a severe drought, it is an avoidable phenomenon that overflow of local reservoirs will occur in times of heavy rainfall, especially rainstorms in wet seasons.

The Dongjiang water was supplied to Hong Kong in accordance with the agreement reached by the Hong Kong and Guangdong sides. The agreement was formulated on the basis of the long-term water policies of both sides to match with the respective sustainable development directions. As such, it is not appropriate for any party to make frequent revisions to cater for short-term situations. Moreover, we would not like to see the Guangdong side frequently adjust the supply quantities due to their own reasons.

Over the past three years, i.e. from 1999 to 2001, the water quantities overflown from local reservoirs to the sea were 120 mcm, 44 mcm and 163 mcm respectively. However, it is inappropriate to estimate the economic loss simply using the unit price of Dongjiang water and the amount of overflow from reservoirs. The determination of the unit price of Dongjiang water is directly related to the agreed supply quantity. The Dongshen Water Supply Scheme is a big and long-term investment. In the past 30 years or so, the Guangdong side had repeatedly put in resources to expand the system to meet the long-term water demand of Hong Kong. If we had reduced the agreed supply quantity at that time to avoid overflow from reservoirs or for other reasons, the unit price would have increased. Consequently, the current unit price would have gone up. Besides, when the rainfall is low, we will have to face the threat of water rationing and the associated financial loss, or pay a higher price for additional water from Dongjiang.

(b) According to the Water Supply Agreement, the supply quantities in 1999, 2000 and 2001 were 770 mcm, 780 mcm and 790 mcm respectively. During these three years, the Guangdong side in response to our repeated requests, had agreed to some flexible arrangement in supply quantities. The actual supply quantities for these three years were 738 mcm, 706 mcm and 729 mcm.

As the storage levels at local reservoirs were high in the last few years, we had discharged some Dongjiang water at Muk Wu Pumping Station into Shenzhen River in 2000 and 2001. In the past three years, the electricity costs had been reduced by an amount close to HK$30m as a result of the reduction in supply quantities from Guangdong and the discharge at Muk Wu Pumping Station.

(c) According to the 1989 Agreement, water prices are to be decided through mutual consultation. The adjustment to water prices will be based on the increases in operating costs and will take into account changes in relevant price indices in Guangdong and Hong Kong, and the exchange rate between the Hong Kong Dollar and the Renminbi. In the negotiation of the water prices in the last few years, we have demanded in a number of occasions that the water prices should be reduced on the ground that both sides were experiencing deflation. However, the Guangdong side had a different view and requested for an increase in water price on the reason that their economy was booming and their operating costs have increased correspondingly.

Nevertheless, we would continue to try our best to negotiate with the Guangdong side on water prices. However, just like any other agreement, it is necessary to have the consensus of both sides before any agreement can be reached. The Guangdong side had also requested that the negotiation on the supply quantities and the flexible supply agreement should be considered as a package together with the water prices. When negotiating on these items, we would surely take the overall interests of Hong Kong into consideration with a view to reaching a reasonable agreement on water price and supply quantities, which was acceptable to both sides.

End/Wednesday, January 16,2002