Hong Kong SAR Government, China 6th EAHC Steering Committee Meeting 20-22 February 2019, Bali, Indonesia Proposal for the financial arrangement for the distribution of ENC by EA-RECC Michael CM CHAU Hydrographic Office Marine Department Hong Kong SAR Government, China

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Agenda Background Role of EA-RECC in the distribution of ENCs Levy for the ENCs service provided by EA-RECC Services Agreement with the HOs and VARs Remittance Arrangement  Currency

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Background According to the Hong Kong (China) proposal to host the EA-RECC, one of the objectives of Centre is “To arrange with chart distributors and other Regional ENCs the distribution and sale of ENCs of the EAHC RECC in an effective and efficient manner”. In order to prepare for the distribution of ENCs, among other things, it is required to examine how to handle the financial matters related to the future business operations between EA-RECC and its clients (HO, VAR etc). Given EA-RECC is currently being hosted in the Hydrographic Office of Marine Department of Hong Kong SAR Government, China (HKSARG), EA-RECC proposes to use the accounting arrangement of the HKSARG in processing receipt from VARS and payment to HOs/EAHC.

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Analysis/discussion Role of EA-RECC in the distribution of ENCs The EA-RECC shall arrange with chart distributors and other Regional ENC Coordination Centres (RENCs), to distribute EA-RECC members’ ENCs in an efficient process through the following processes: The EA-RECC shall impose a levy to its members for providing the ENCs services according to the amount of ENC validated and distributed. The EA-RECC shall negotiate an agreement with chart distributors and other RENCs on the amount of handling charges or discounts. The EA-RECC shall prepare a summary of collection and remittance on an annual basis for reference by its members and the EAHC.

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Levy for the ENCs service provided by EA-RECC The ENCs service provided by EA-RECC include the validation of the ENCs data for consistency with the IHO ENC S-57 data transfer standard, and from this compiles a consistent ENCs database which it makes widely available through its appointed VARs. These VARs are responsible for preparing the end-user services which include the ENCs, and distributing these services through their respective distribution chains. A levy will be imposed for every ENC cell handled (validation and distribution) by EA-RECC. All the levy so collected will be transferred to the Training Research and Development Center (TRDC) of the EAHC for funding capacity building work. The levy rate is subject to the decision of the SC of EAHC.

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Services Agreement EA-RECC will enter into a service agreement with member HOs and VARs respectively. The key contents of each service agreement are as below: i) The service agreement with member HOs: The scope of the ENCs validation service; Permission for EA-RECC to access and distribute the ENCs data supplied; Unit price for ENC cell to be supplied to EA-RECC; The levy rate to be charged by EA-RECC according to the amount of ENC validated and distributed (optional); and Agreement on the arrangement for the remittance, e.g. exchange rate difference and bank charge borne by the member.

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Services Agreement (cont.) ii) The service agreement with VARs: Items to be distributed; Permission for the VARs to access and distribute the ENCs data supplied; Unit price for ENC cell to be distributed to VAR; Technical information and specifications for data validation and transfer; and Agreement on the arrangement for the remittance, e.g. exchange rate difference and bank charge borne by VAR.

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Remittance Arrangement  EA-RECC will collect the remittance from the VARs and redistribute the apportioned sum to the member HOs as well as the TRDC of EAHC through the accounting system of the Treasury of HKSAR. All related procedures for remittance shall comply with relevant regulations and instructions of HKSAR. The HKSARG will bear the associated administrative cost while the costs/charges arising from bank charge and any difference in the remittance resulted from the exchange rate (from/to Hong Kong Dollar) will be borne by the VARs and the member HOs according to the related clauses in the service agreement. In other words, EA-RECC shall have no gain or loss in rendering the remittance services.

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Currency Since the HKSARG bank account can only transact in Hong Kong Dollars (HKD) while the remittance will be set in US dollars or other currency, the flow of the remittance from the VARs to the member HOs and the TRDC of EAHC will be subject to the fluctuation in exchange rate in buying and selling differences as well as bank charges. All the transaction will be conducted at the prevailing spot exchange rate offered by the corresponding banks, including any intermediary banks, involved in handling the remitted amounts.

Proposal for the financial arrangement for the distribution of ENC by EA-RECC VAR 1 EAHC TRDC USD to HKD HKSAR Government Deposit Account (HKD) HKD to USD ? VAR 2 USD to HKD HKD to USD ? HO 1 VAR 3 USD to HKD HO 2 HO 3

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Conclusion/Recommendation One of the objectives of EA-RECC is to validate and distribute the ENCs of the member HOs. Such an objective could be materialized through the signing of service agreement between EA-RECC and the VARs and member HOs respectively. In order to allow EA-RECC to fulfil such objective, it will require the EA-RECC to have a mechanism in place to handle the money flow with the three said stakeholder groups, i.e. the VARs, member HOs and the TRDC of EAHC, in due course. The mechanism will only be required to serve as a transition account to hold the money received from the VARs before they are redistributed to the member HOs and the TRDC of EAHC respectively. It is proposed to adopt the procedures as described in paragraphs mentioned above as a mean for such purpose.

Proposal for the financial arrangement for the distribution of ENC by EA-RECC Actions Required of SC6  a. Endorse this proposal. b. Set the levy rate for the EA-RECC, taking into account the impact to the sales price of the member’s ENC distributing through EA-RECC. b. Discuss other considerations if any.