1. Accounting Policies

(a)

Basis of Accounting The accounts have been prepared on the historical cost basis of accounting modified to include notional receipts and payments. Although the services incur a deficit in the year, the accounts are prepared on a going concern basis on the assumption that the deficit will be met by a corresponding subsidy from the Government.

(b)

Fixed Assets (i) No cost is included for land. (ii) By a Resolution passed by the Legislative Council on 26 July 1995, the assets comprising the public sewerage systems and sewage disposal facilities under the control of the Director of Drainage Services on 31 March 1995 as set out in the document titled “Inventory of Public Sewerage Systems and Sewage Disposal Facilities as at 31 March 1995” were appropriated to the Sewage Services Trading Fund (SSTF) at a zero valuation. Upon closure of the SSTF, these assets have been reverted to the Government. The net book values of these assets are shown in note 4. (iii) All sewerage projects are accounted for in the financial year following the year of commissioning and subject to depreciation. (iv) Fixed assets costing $100,000 or more each are incorporated in the accounts at the cost of acquisition and subject to depreciation.

(c)

Projects under Development (i) For capital projects, the costs include the actual direct expenditure, and staff costs for design, planning and supervision during the construction period. (ii) Expenditure incurred on all sewerage projects funded under the expenditure vote of Drainage Services Department and other works departments is capitalized as projects under development. Following the year of commissioning of the projects or part thereof, the related expenditure incurred will be transferred to fixed assets.

(d)

Depreciation (i) Depreciation is provided on a straight line basis calculated to write off the cost of the assets less residual value over their estimated useful lives. (ii) The annual rates of depreciation used are : Sewage treatment works • Civil works 2% • Electrical and mechanical equipment 6% - 7% Pumping stations • Civil works 2% • Electrical and mechanical equipment 4% • Rising mains 4% Infrastructural assets • Tunnel sewers 1% • Sewers 2.5% • Outfalls 2% Leasehold improvements 33% - 35% Computer systems, equipment and vehicles 12.5% - 20%

 

2. Revenue

Notional contribution from Government for the free allowance to domestic consumers has been excluded from the revenue.

	2001 $ Million	2000 $ Million
Sewage charge	456.8	466.3
Supplies to Government establishments	23.0	12.2
Trade effluent surcharge	239.8	235.2
Miscellaneous services	29.5	25.7
	749.1	739.4

 

3. Expenditure

	2001 $ Million	2000 $ Million
Staff costs	521.2	525.3
Light and power	127.8	120.9
Sludge disposal	28.7	38.8
Chemical	29.4	33.4
Operation and maintanence expenses	266.8	273.1
Rental and management charges	14.6	14.7
General operating expenses	140.9	133.8
Depreciation	247.1	212.0
	1,376.5	1,352.0

 

4. Fixed Assets

	Sewage Treatment works $million	Pumping Stations $million	Tunnel, Sewers and Outfalls $million	Leasehold Improvements $million	Computer Systems, Equiqment and Vehicles $million	Projects Under Development $million	Total $million
Cost
At 1 April 2000	2,868.1	1,204.1	2,138.4	2.4	51.2	10,515.2	16,779.4
Additions	-	-	-	-	33.1	2,435.2	2,468.3
Transfers from projects under development	143.3	296.0	404.5	-	-	(843.8)	0.0
At 31 March 2001	3,011.4	1,500.1	2,542.9	2.4	84.3	12,106.6	19,247.7
Aggregate depreciation
At 1 April 2000	191.2	66.0	77.7	2.4	20.8	-	358.1
Charge for the year	127.1	46.2	61.4	-	12.4	-	247.1
At 31 march 2001	318.3	112.2	139.1	2.4	33.2	-	605.2
Net book value						-
At 31 march 2001	2,693.1	1,387.9	2,403.8	0.0	51.1	12,106.6	18,642.5
At 1 April 2000	2.676.9	1,138.1	2,060.7	0.0	30.4	10,515.2	16,421.3

As referred to in note 1(b)(ii), the assets which were appropriated to the SSTF at a zero valuation and reverted to the Government upon its closure have a net book value as at 1 April 2000 of $5,990.4M. After taking into account depreciation of $267.9M for 2000/01, the net book value of these assets as at 31 March 2001 was $5,722.5M.

 

5. Current Assets

	2001 $ Million	2000 $ Million
Debtors and prepayments	133.6	127.4
Bank	1.0	1.4
	134.6	128.8

 

6. Current Liabilities

	2001 $ Million	2000 $ Million
Creditors	6.9	9.7
Current account with Treasury	1,184.8	795.9
	1,191.7	805.6

 

7. Public Capital Account

The Public Capital Account represents Government's investment in sewage services.

	2001 $ Million	2000 $ Million
Balance as 1 April	15,744.5	13,687.9
Deficit for the year	(627.4)	(612.6)
Additional cash investment by the Government	2,468.3	2,669.2
Balance as at 31 March	17,585.4	15,744.5

 

8. Capital Commitments

	2001 $ Million	2000 $ Million
Capital expenditure contracted for	5,500.0	6,119.0
Capital expenditure authorised but	5,100.0	2,220.0
not yet contracted for	10,600.0	8,339.0

 

9. Post Balance Sheet Events

On 27 June 1997, the Joint Venture contractors of two sewer tunnel contracts served a Statement of Claim claiming damages for alleged repudiatory breach of contract from the Government following its re-entry of these two contracts in December 1996. The Government served its Defence and Counterclaim (on issues of liability only) on 8 May 1998. The arbitration proceedings on liability were concluded in early 2001, however, the Contractor subsequently appealed to the High Court. In the course of 2001, while the appeal was pending, the parties initiated mediation proceedings to resolve all outstanding issues and a mediated settlement was concluded on 20 September 2001. The Agreement sets out arrangements for payments to be made by the Joint Venture contractors to the Government. Both parties agreed to terminate and withdraw all further arbitration and appeal proceedings relating to the contractual disputes. Further details of the settlement have been reported to the Legislative Council.