Annual Report 2016
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Risk Factors
D. Major Risk Factor on Subsidiaries
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NWS Holdings Limited (“NWSH”)
(continued)
Concession, franchise and license risks
6.
NWSH operates and manages certain concession and franchise businesses such as providing facilities management
services at the Hong Kong Convention and Exhibition Centre (“HKCEC”), operating public bus and ferry transportation
services and operating duty free tobacco and alcohol retail business at certain Hong Kong and Macau borders. NWSH
also has roads, energy and water projects operating under concessions in Hong Kong, Mainland China and Macau.
There can be no assurance that the concession, franchise and license agreements can be renewed or if renewed, that
the terms of such concession, franchise and license agreements will not be less favourable than those currently
obtained by NWSH.
Tariff and service fee determination
7.
Tariffs and fees charged by NWSH’s projects with respect to its toll roads, water supplied/treated by water plants,
electricity produced by its power plants and aeronautical service provided by its airport are set by various relevant
government authorities, although NWSH can propose rate changes in conjunction with its joint venture partners.
Factors that these government authorities take into account when considering rate changes may include construction
costs, prospective recovery period of investment, loan repayment terms, inflation rate, operating and maintenance
costs, affordability and usage. Reductions in or cessation of tariffs and fees charged by NWSH’s projects may
adversely affect NWSH’s operating results.
Environmental concerns
8.
NWSH is subject to extensive and increasingly stringent environmental protection laws, regulations and decrees that
impose fines for violation of them. In addition, there is a growing global awareness of environmental issues. NWSH
may sometimes be expected to meet a standard which is more stringent than the requirement of the prevailing
environmental laws and regulations, which may cause negative impacts on the costs and operations of its projects.
9.
Though NWSH has adopted various environmental protection measures, NWSH cannot assure that more stringent
environmental protection regulations will not be imposed in the future. If NWSH fails to comply with the prevailing
environmental laws or regulations, or fails to meet public expectations in relation to environmental matters, NWSH’s
reputation may be damaged or may be required to pay fines or take remedial actions, in which case suspension of
operation may be required in NWSH’s related projects.
Infrastructure Division
Roads
10. NWSH invests in and operates a wide range of roads and related projects in Mainland China and Hong Kong. The
operational risk of toll roads is generally low as long as an effective internal control system in toll collection is
properly established and periodic maintenance is appropriately carried out. However, revenue from NWSH’s toll roads
is principally dependent upon the number and types of vehicles using such roads and their applicable toll regimes.
The review on toll rates of all toll roads in Mainland China and the implementation of new policies by the Mainland
China government, such as toll free access by certain types of vehicles during major holidays and toll rate
standardization, may cast uncertainty on NWSH’s roads business and operating results. Traffic volume is directly and
indirectly affected by a number of factors, including the availability, quality, proximity and toll rate differentials of
alternative roads, the existence of new competing roads and other means of transportation, fuel prices, taxation,
environmental regulations and suspension of operation due to material accidents. NWSH’s operating results may also
be affected by capital expenditure requirements for the ongoing repair, maintenance, renewal and expansion of the
toll roads.
Environment
11. The operation of NWSH’s power plants in Mainland China is complex and may be adversely affected by many factors,
such as the downtime caused by system upgrades and overhaul works, the breakdown of equipment or disruption of
production processes, plant underperformed or efficiency, labour disputes, natural disasters, insufficient or poor
quality fuel, reduced demand for electricity, the setting of on-grid tariffs and the need to comply with the directions of
the relevant government authorities or utilities. Fluctuations in fuel and finance costs, changes in regulatory regimes,
disruptions in fuel supply or shortage of transportation resources may adversely affect the profit and normal
operation of the power plants which in turn may impact on NWSH’s business and financial condition.
12. NWSH’s water and related projects are subject to environmental regulations and are exposed to environmental risks,
such as water supplies being polluted by naturally occurring compounds or man-made sources. The types and
amounts of pollutants in the water supplied or waste water treated by NWSH may increase unexpectedly due to a
number of factors, including the occurrence of natural disasters, industrial accidents or increase in levels of
manufacturing activities.