HONG KONG WATER SECURITY: REDUCING DEPENDENCE ON

UNCLAS SECTION 01 OF 03 HONG KONG 000146

SIPDIS

DEPT FOR EAP/CM, EAP/EP FOR MACFARLANE, OES/PCI FOR MIRZA,
OES/EGC, OES/ENV FOR SALZBERG

E.O. 12958: N/A
TAGS: CM ECON ENRG HK PBTS SENV SOCI TPHY KGHG
SUBJECT: HONG KONG WATER SECURITY: REDUCING DEPENDENCE ON
GUANGDONG


1. SUMMARY: Despite a guaranteed water supply from Guangdong
province, Hong Kong's heavy reliance on its northern neighbor
has driven the Special Administrative Region (SAR) to
initiate several new water conservation measures. This new
policy is prompted not by costs or desire to be a "good
partner in the Pearl River Delta" but concerns over
Guangdong's ability to meet Hong Kong's clean water needs in
the future. Water tariff reform, a long-term water management
strategy, and direct involvement in mainland China's water
management are expected to help ensure Hong Kong's water
security. END SUMMARY


2. A recent severe drought in Guangdong province and
well-publicized water shortages in mainland China increased
local concerns that Hong Kong was overly dependent on
Guangdong for its water. EconOff met with Hong Kong's Water
Supplies Department (WSD),NGOs (Greenpeace and WWF) and a
leading independent think tank, Civic Exchange for an
assessment of the reliability of mainland China as a water
source and Hong Kong's plans to reduce its dependence on
Guangdong.

Hong Kong Reliant on Mainland China for Water
--------------


3. Securing Hong Kong's water supply has always been a
challenge for the government. Until the 1980s, annual water
shortages were serious enough to require frequent water
rationing. In 1950s and 1960s, Hong Kong started using sea
water for toilet flushing, began building new reservoirs, and
negotiated water imports from Guangdong province. Rapid
urbanization and industrialization in Guangdong and the
cities along the Dongjiang (East River) tributary of the
Pearl River have increased the region's demand for water.
Diminished water quality from agricultural, municipal and
industrial pollution, as well as water loss from flooding,
droughts and climate change related impacts have added to the
pressures on regional water resources.


4. Hong Kong currently imports 70 to 80 percent of its fresh
water from Guangdong. Under the current agreement, Guangdong
guarantees Hong Kong a maximum of 1.1 billion cubic meters
(BCM) of raw fresh water each year for a fixed price.
According to Hong Kong's Water Supplies Department (WSD)
Director Lee Tak Ma, Hong Kong in recent years has not
exceeded its maximum allotment. Hong Kong's total water
imports from Guangdong average between 0.7 to 0.8 BCM. In
addition to Guangdong water, Hong Kong also has 17 local
rainfall collection reservoirs that can supply up to 0.295
BCM of water per year or 20 to 30 percent of its annual water
demand.


5. In 2008, Hong Kong consumed a total of 1.231 BCM of water
(0.956 BCM of fresh water and 0.275 BCM of sea water) or
175.8 cubic meters (or 175.8 kiloliters) of water per person
per year. Residential use accounts for over half of fresh
water usage, given Hong Kong's minimal agricultural sector
and shrinking industrial sector. According to 2007
International Water Association (IWA) statistics, Hong Kong
ranked fourth amongst all cities in global water consumption.

Guangdong Declines Hong Kong's "Good Neighbor Policy"
-------------- --------------


6. Water shortages in mainland China in 2009 spurred many in
Hong Kong to urge the government to temporarily halt its
water imports from Guangdong. Lau Nai-keung, a Hong Kong
member of the Basic Law Committee of the National People's
Congress, Standing Committee and member of the Commission on
Strategic Development, in an October 2009 editorial in South
China Morning Post urged Hong Kong to adopt a "good-neighbor
policy" by drawing on its own reservoir water before tapping
Guangdong's supply.


7. This "good neighbor policy" proposal gained enough
momentum to prompt Hong Kong WSD and Guangdong's Water Supply
Board (WSB) to meet in early November 2009. However, the
official response from Guangdong after the meeting was that
it appreciated the gesture but would continue water
deliveries to Hong Kong, which only accounts for three
percent of Dongjiang's average annual flow volume. Since
then, Guangdong's WSB has implemented a water quality
regulation plan to manage water output from three of its
reservoirs to meet the needs of the cities in the region,
including Hong Kong. Several parties, however, opined that

HONG KONG 00000146 002 OF 003


the PRC central government was more concerned about the fixed
HK$2.96 billion (approximately US$384 million) payment it
gets Hong Kong and wanted to ensure that the arrangement
continued.

Future Supply Sufficient, But Conservation a Priority
-------------- --------------


8. WSD predicted that, with a reference population of 8.4
million and no additional water demand, Hong Kong's annual
fresh water demand would grow to 1.315 BCM by 2030.
Officials were confident that Hong Kong's water demand could
be met by its current arrangement with Guangdong for the next
20 years. Nevertheless, Hong Kong officials have recognized
the importance of water conservation and have taken steps to
reduce per capita consumption. HKG enacted a Total Water
Management (TWM) plan in 2005/2006, aimed at reducing average
consumption of fresh water to 130 kiloliters per head per
year. The TWM plan aims to optimally balance water demand
and water supply using an integrated, multi-sectoral approach
that aims at cutting overall waterconsumption by 10-20
percent by 2030.


9. On he supply side, Hong Kong is promoting the use of
reclaimed water from sewage treatment facilities for toilet
flshing and other non-potable uses. WS is also promoting
water harvesting and "grey" wter recycling, such as the
re-use of water from ashing machines and bath water,
particularly forcommercial and industrial use. WSD completed
pilot tests in 2007 on sea water desalination by using
reverse osmosis technology. These tests confirmed that the
technology was viable for Hong Kong, however the cost of
desalination was still considerably higher than the cost of
fresh water imported from Guangdong. Hong Kong continues to
look at new desalinization technology and, if viable and cost
effective, would consider a desalinization project as a means
to diversify its water supply.


10. On the demand side, HKG has been running a public
campaign to raise awareness and to encourage voluntary water
conservation. WSD distributed information on CDs to students
about water saving tips and has been working with District
Councilors to promote smart water usage. HKG established the
Green Building Council on November 20, 2009 with the aim of
promoting environmentally sound standards and practices in
construction, including the installation of water saving
devices. The city is currently renovating its aging water
mains to reduce water leakage by 0.085 BCM a year.
Maintenance is scheduled to be completed by 2015. In
addition, WSD is planning to further expand the use of sea
water for toilet flushing, currently used by 80 percent of
Hong Kong's population.


11. Hong Kong officials stated that the SAR's water saving
initiatives were driven not just by costs, but also by
concerns that future water imports from Guangdong might be
unreliable. Officials stressed the need for Hong Kong to be a
"good partner to the PRD" as it faced water shortages but
were also eager to reduce Hong Kong's dependence on Guangdong
water as much as possible. WSD Director Ma was quoted saying
that "there is no room for complacency." NGO representatives
and researchers echoed this concern for Hong Kong's water
future and predicted the likelihood of future intense
competition for water resources in mainland China.

Hong Kong's Cheap Water Policy
--------------


12. According to 2007 IWA statistics, Hong Kong's average
annual water tariff ranked very low compared to other major
countries and administrative regions. Under Hong Kong's
current domestic water pricing scheme, the first 12 cubic
meters of water is free, followed by a tiered system that
ranges from HK$4.16 to HK$9.05 (approximately US$0.60 to
US$1.17) per cubic meter. According to Civic Exchange, this
equates to about a quarter of one percent of an average
household's expenditures. This was considerably lower than
other major Asian cities where the average monthly water bill
accounted for 0.5 to 0.9 percent of household expenditure. In
comparison, water bills accounted for 0.5 to 1.5 percent of
household expenditures in the U.S. and Europe. According to
researchers, the WSD has been running a deficit and has lost
more than HK$300 million (almost US$3.9 million) in the past
two years.


HONG KONG 00000146 003 OF 003



13. WSD has recognized the need for water tariff reform and
in 2000 proposed various measures including ending free
allowances, stopping subsidies, mandating full recovery of
production costs, and proposing direct subsidies only for
low-income households. However, the SARS outbreak in 2003 and
the subsequent economic fallout in 2003/2004 prompted HKG to
shelve the idea of raising tariffs. Hong Kong has continued
to provide free allowances and, according to Civic Exchange,
as a result subsidizes over half of the community's water
charges.


14. Faced with doubts about future supply, the concept of
pricing to drive water conservation is gathering momentum
again. Industry observers believe that a rich city such as
Hong Kong should charge more for water and that water usage
could be reduced by a third. Officials, when asked about the
possibility of implementing tariff reform, told EconOff that
it "was not completely off the table."

Observers Push for Hong Kong Role in Regional Water Management
-------------- --------------


15. Industry observers want to see Hong Kong have more
direct involvement in decisions that impact its water future.
They criticized Hong Kong's lack of a long-term water policy,
as it relied only on negotiations of price and quantity of
its water supply with Guangdong. They want HKG to view its
water supply within the context of South China and to ensure
its place within the Pearl River Water Resources Commission
and other relevant water management bodies. Although
officials maintained that Hong Kong had strong links with
Guangdong counterparts on water management issues, Hong Kong
often ended up only playing an observer role in mainland
China's water management activities. Observers suggested that
Hong Kong should not only urge its own people to consume less
water, but also urge Guangdong and the cities along the
Dongjiang to work together to better protect the tributary
and help transform the PRD region into a "green and quality
living area." In addition, HKG could work with Hong Kong
owners of Guangdong factories to improve water pollution
controls. Observers also encouraged the government to take
the lead by using reclaimed water within government buildings
and public housing estates and offer developers incentives to
install water-saving devices in new developments.


16. WSD Director Ma suggested two areas where Hong Kong
could play a role in mainland China's overall water
management system. He speculated that Shanghai and Beijing's
aging water networks would face problems in the future and
that Hong Kong could play a leadership role in managing water
supply assets, including network leakage detection, network
maintenance and improvement, and water testing, analysis and
certification with its modern laboratories. In addition,
Hong Kong's use of sea water for toilet flushing was unique
in the world. Sharing the latest technology and chemical
processes developed by local Hong Kong universities could
greatly help coastal communities in mainland China.

MARUT