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Tariff adjustments by public utility enterprises in Hong Kong are always controversial. Every year the two power companies and the MTR Corporation ask for price adjustments. This has become usual practice. To many people, such fare adjustments are bad news. Often, they voice their discontent and many opinion leaders also advocate tougher controls on public utility companies by the government. However, this request for greater government controls over price adjustments is without grounds.

Any price adjustments by public enterprises should be legal, reasonable and acceptable. However, the public often does not believe they are. This, therefore, makes price adjustments by public utility enterprises a never ending source of debate.

From a legal perspective, price adjustments by all public utility enterprises are lawful. Take the Scheme of Control (SoC) Agreement of the two power companies. The SoC specifies the requirements on the operations of the two power companies, and the way to calculate a return. Every detail contained in the SoC, signed between the government and the power companies, is legally binding. So for the power companies, the annual tariff adjustment is a legitimate claim outlined in the SoC document. So when the two power companies request a tariff adjustment in accordance with requirements of the SoC, it is totally legal. In Hong Kong, we respect the rule of law and have strong sense of contract enforcement. Hence, we cannot deny the rights of the power companies to adjust tariffs.

The situation involving other public utility enterprises is similar. The MTR has a Fare Adjustment Mechanism which was passed by the Legislative Council. Kowloon Motor Bus Co has a similar mechanism. Even the Housing Authority has a system of rental adjustments for public housing. Therefore, requests for price adjustments by public utility enterprises are all legal.

The request for price adjustments by public enterprises come from cost increases. When we examine requests by public enterprises, it is not surprising to find cost increases are the most cited reason for such a request. In current years, inflation is a real concern and no doubt operating costs of public utility enterprises rise. Take the two power companies as an example. The power tariff contains an element called fuel adjustment - which is actually the cost of fuel. If fuel cost rises, the power companies can, and have the right to, pass this increase on to consumers. Also, if the increase in tariffs is mainly due to increases in costs (and the power companies are not requesting higher prices for higher profits) it is not unreasonable for the two power companies to ask for tariff raises. Whether people agree about this is another matter.

The real problem lies in the acceptability of price increases by public utility enterprises. For most Hong Kong people, the public utility enterprises appear to be earning huge profits year after year. Yet, they still ask for price increases. This gives people the impression the profits of public enterprises are excessive. However, this is more a perception than a reality. Nevertheless, it is this perception which causes problems. Even though public enterprises are legitimate and have good reasons for price increases, people cannot accept those increases. When public enterprises are talking about their legal rights, people also cannot accept their arguments. They will look at the issue of acceptability rather than of legitimacy and reason. This has happened year after year, and there is no sign of any solution yet.

The real danger of such contradictory views is the public has very different views from the elites on controversial issues. This also illustrates how difficult it is to pursue public policies. Traditional ways of legitimacy and reason are still practiced by many elites and government officials in formulating public policies. However, the public mostly focuses on perception and acceptability. No wonder conflict occurs. The government will always have a hard time fighting public opinion based on perceptions. There are many tough battles ahead.

The author is dean of the School of Business at Hang Seng Management College.

(HK Edition 04/03/2014 page9)