2. At the invitation of the Chairman, Hon LAU Chin-shek briefed the meeting on the Public Bus Services (Amendment) Bill 1996 by reference to his Brief for LegCo dated 15 April 1996. He highlighted the following points:

the existing bus fare increase mechanism had not included any legislative provision for consultation with LegCo, resulting in views of LegCo being ignored. The Bill had therefore sought to put in place a monitoring role by the LegCo in the fare revision of franchised bus services, which now only required the approval of the Governor in Council. Under the proposed Bill, fare increase proposals approved by the Governor in Council would have to be tabled in LegCo as subsidiary legislation;
there was no intention of obstructing bus fare increase proposals through the proposed Bill. If LegCo considered the proposed fare increases reasonable, the increases could proceed after introduction of the subsidiary legislation;
anomalies existed in the mechanism for fare revision of public transport companies since unlike those of the bus companies, fare revisions of ferries, trams and taxis required the making of the relevant subsidiary legislation, subject to any amendment by LegCo;
contrary to general belief, the Bill had not politicized the bus fare increase mechanism. On the contrary, it had proposed minimal changes to the present mechanism; and
the Administration had confirmed that the Bill had not violated the franchise agreement and profit control scheme between the Administration and bus franchisees.

Meeting with Deputations

3. The Chairman welcomed representatives from the four franchised bus companies and the Sun Hung Kai Properties Ltd. to the meeting and invited each of them to present their views on the Bill.

(i) The Kowloon Motor Bus Co. (1933) Ltd. (KMB)

4. Mr John CHAN of the KMB presented KMBs views on the Bill by referring to the companys representation dated 14 February 1996. He advised that the KMB strongly objected to the Bill and emphasised the following;

the Bill constituted a fundamental, rather than just a procedural change, to the KMB franchise. The KMB had accepted the franchise on the understanding that increases in bus fares would be determined in accordance with the fare increase mechanism stipulated in the existing Public Bus Services Ordinance (PBSO) (Cap. 230);
the Bill would prolong the fare increase application procedure and cause delay in fare increases. This would have adverse financial impact on the company;
the monitoring of the operation of franchised bus companies was a very complicated and thorough process, and fare determination only formed a part of the monitoring mechanism. According to the terms of the franchise, every minute aspect of the daily operation of a franchised bus company was closely monitored through daily monitoring by the Transport Department and the Transport Branch and the legal requirement of submission annually of a Five-year Forward Planning Programme;
political factors would be brought in if the authority for determining bus fares was to involve LegCo. Without being involved in the daily monitoring of bus operations, LegCo Members might not be able to arrive at a balanced conclusion in their evaluation of fare increase applications;
LegCo should not take over the role of the Administration and be involved in the daily monitoring of franchised bus operations as this would confuse the role of the legislature with the executive arm. The present system of determining bus fares was working well and struck a correct balance among the parties concerned;
the standard of Hong Kong bus service was among the highest in the world and the fares charged were very reasonable, and required no subsidy from public funds. Although the Bill in itself had not violated the franchise agreements and the profit control schemes between the Administration and the bus franchisees, it would inevitably mean that the agreement and the scheme of control would be affected; and
the Bill would create uncertainty among investors on the ability of the bus companies to earn profits and to maintain the growth in profitability. In the absence of continued support from investors and reasonable increases in fares for generating acceptable profits, service improvement would be hampered and the quality of service would deteriorate in the long run.

(ii) The China Motor Bus Co., Ltd. (CMB) and Linklaters & Paines

5. On behalf of the CMB, Mr Raymond Cohen of Linklaters & Paines elaborated on CMBs concerns on the Bill by referring to the representation dated 21 March 1996. The CMB shared the concerns of the other bus companies and the Administration and was strongly against the Bill. Mr Cohen highlighted the following:

the Bill would delay implementation of fare increases and could result in million dollars of loss of fare revenue. The financial viability of CMBs bus operations, including staff wages, could be threatened;
while the CMB did not question the power of LegCo to change the framework, the proposed Bill aimed to take away from the Administration the authority for approving fare increases and was tantamount to interference with freely negotiated contractual rights; this was totally unacceptable. Had the CMB been aware of the change in the mechanism under which CMBs fares were set, it would have categorically disagreed with the terms of the three-year franchise which commenced from 1 September 1995; and
enactment of the Bill would cause uncertainty among investors on the Administrations policy on public transport. They would doubt if private bus companies would still be economically viable and financially independent. By adding such an element of uncertainty, the Bill would undermine the business confidence of potential investors in listed companies and infrastructural developments. It would also change fundamentally investors perception on the control of public utilities in Hong Kong and shake the foundation of private enterprises. The Bill would also open the door for bus fare increases to political considerations.

(iii) The Citybus Ltd.

6. Mr Lyndon Rees of the Citybus Ltd. supported the points raised by representatives of the KMB and the CMB, and advised that the Citybus Ltd. would soon submit another detailed submission. He emphasised that the significant capital investments of bus companies were normally funded by bank loans. The existence of a political factor in the bus fare increase mechanism would create difficulties in obtaining bank loans for major works programmes, as banking institutions might doubt the ability of bus companies in servicing the debts. it would definitely be against the public interest if the expansion and modernisation of bus fleets were retarded. He said that passengers, workforce and shareholders were the three basic elements of the Citybus Ltd. The company had awarded a salary increase of 9% in the current year despite a fare increase of only 9.5% over that last 18 months because it had to consider the need for enhancing the dignity and service of its staff. He quoted the latest trends in the United States and in Europe both of which were in the direction of complete de-regulation and the introduction of constructive competition. He reckoned that public transport in Hong Kong had been over-regulated in many respects and expressed the hope at least for the present system to be kept.

(iv) The New Lantao Bus Co., (1973) Ltd. (NLB)

7. Mr Matthew WONG of the NLB said that since the NLB took over operation of the franchised bus service through the purchase of shares from the former operator with the assistance of bank loans, considerable time and efforts were spent in meeting the requirements of the extremely stringent monitoring system despite the comparatively small size of the company. He considered that such efforts could have been more effectively used to devise cost-saving measures and improvements in service. Mr WONG stated that the NLB was opposed to the Bill. He added that although NLBs patronage did surge after the opening of the Buddha Statue at Ngong Ping, such a popularity had since faded and the profit of the NLB in 1995 was only about $1 million. He emphasised that the NLB had only applied for a fare increase in 1996, which was three years after the last fare increase in 1993. He shared Mr Rees concern that bus operations were labour intensive and advised that the need to keep staff wages at an acceptable level was also high on the companys agenda. He found it frustrating that bus fare revisions should have to be subject to vetting by LegCo.

(v) Sun Hung Kai Properties Ltd. (SHK Properties)

8. Mr George CHIEN of SHK Properties referred to the letter dated 1 February 1996 from Mr Walter KWOK, the Chairman & Chief Executive of the company, to LegCo Members and urged members not to pass the Bill. He advised that SHK Properties held about 32% of KMBs shares as a long-term investment. Unless there was a reasonable return, SHK Properties would give up such an investment. He considered the Bill unfair to shareholders of the KMB and would affect the desire of the private sector to invest in bus companies in Hong Kong.

Views of the Administration

9. Mr Haider Barma advised that the Administration, like the deputations, firmly opposed the Bill although the Administration had a different view with the bus companies regarding the profit control scheme. He reiterated that transport services were not subsidized. The Administration had a monitoring and regulating role but it was the private sector that provided the range of transport services.

10. In commenting on the charging effect of the Bill, Mr Barma advised that although the wording of the Bill itself did not have such an effect per se, it was possible that a LegCo resolution to amend an individual bus fare order might have a charging effect on Government revenue, depending on the particular circumstances of each case.

11. In continuing, Mr Barma stressed that the authority for approving bus fare increases rested with the Governor in Council . The tabling of the fare increase of the CMB in LegCo in 1972 as subsidiary legislation was not required by law per se and should not be cited as normal Administration practice. Although historically fare revisions for other public transport companies such as trams, ferries and taxis were subject to vetting by the LegCo, the Administration would be prepared to amend the law to bring them in line with the current bus fare increase revision mechanism if LegCo Members wanted a uniform approach. He noted however that members might not wish to be deprived of their existing power to scrutinise such fare revision proposals.

12. As regards the existing fare revision mechanism, Mr Barma emphasised that every bus fare increase application was vetted meticulously by the Administration, taking into consideration public affordability, expansion programmes of the bus company concerned, ability to meet rising operating costs like wages and repairs, and the interest of the investors. The percentage increase applied for would not be granted automatically and there were past examples of fare increase applications being slashed.

Deliberations

Profits of bus companies

13. Mr John CHAN expressed concern that LegCo Members might not support bus fare increases at times of economic boom for fear of pressure on inflation, and neither would Members agree with fare increases during economic recessions as these would create burdens on passengers. He was also worried that politicising the issue of bus fare increases would affect the share prices of bus companies, increase the costs of borrowing and make market capitalisation difficult. In response to Hon LAU Chin-shek, Mr CHAN emphasised the need for a bus company to earn profits to improve its service. He said that while the KMBs profits amounted to a total of $1,654 million in the past five years, a capital investment of $1,479 million had been spent on acquiring new buses during the same period. He was of the view that such significant profits, envied by bus operators in other parts of the world, rightly demonstrated that the present monitoring system was working well.

Balance of interest of different parties

14. A member expressed doubt on whether the Bill could balance the interests of passengers and shareholders of bus companies alike. Mr John CHAN considered that such interests might not be in confrontation. He was of the view that the present mechanism had already struck a correct balance but this would be upset if the Bill were to be enacted.

15. In response to a member, Mr Barma said that he would not accept the assertion that the present mechanism only looked after the interest of shareholders. He added that had the historic values of assets of the KMB been updated, the return on investment would have been much lower. He cautioned that nobody would invest in bus operations if a reasonable return could not be expected on their investments. Under such circumstances, it would be the public who would lose out in the long run.

16. In reply to a member on his stance about balancing the interest between shareholders and the public in relation to the recent ferry fare revision proposals, Hon LAU Chin-shek said that he would also have regard to other related issues such as the overall organisational structure and other operational matters of the companies concerned.

Impact of the Bill on bank loans

17. Some members asked for quantification of the claimed negative impact of the Bill on soliciting bank loans. In response, Mr John CHAN advised that banks were very attentive to changes in the Administrations policies and would require a letter of comfort spelling out explicitly the prevailing Administration policy when processing bank loan applications for the purchase of buses. It followed therefore, that banking institutions would definitely take into consideration the possible impact of the Bill. However, he did not deem it possible for the banks to quantify the impact prior to enactment of the Bill. Mr Barma confirmed in reply to the Chairman that bus companies did from time to time request letters of comfort from the Administration.

Monitoring mechanism

18. In reply to a member on plans by the Administration in implementing new schemes for monitoring public transport, including the sale of depots by the operators, Mr Barma re-iterated that the present monitoring mechanism worked well. The Administrations direction was towards dispensing with LegCo vetting on fees for all new build-operate-transfer projects and such an approach would also be adopted for public transport. He emphasised the importance of a fair and reasonable return for investors of bus companies in consideration of the vast sum of capital investment involved. He added that the Administration did not provide bus companies with bonanzas and could deny fare increases if the performance of a bus company was unsatisfactory. In addition, other penalty measures, such as the non-renewal of franchise and the suspension of routes, were also available.

19. On the subject of sale of depots and quoting CMBs sale of its Wong Chuk Hang site as an example, Mr Barma clarified that the land on which the bus depot was built was not granted by the Administration to the bus company but was acquired from the open market by its shareholders. The Administration would have to be satisfied that a depot was no longer required for the running of bus services before it could be relinquished. He re-assured members that the Transport Department was closely monitoring the daily operation of the bus companies, adding that amendments to the PBSO in the 1994/95 LegCo session had made bus operations more transparent through the disclosure of accounting information.

Share prices of bus companies

20. A member questioned if the share prices of bus companies had slumped since gazettal of the Bill. Mr John CHAN acknowledged that the share price of the KMB had not fallen drastically since February 1996. However, he cautioned that when compared with the performance of many other shares and the Hang Seng Index, the price of the KMB share was way behind the top performers. As far as he understood, investors in bus company shares looked more for stable dividend income rather than capital gains arising from sharp increases in share prices. He added that the limited circulation of shares because of control by major shareholders and hence the low turnover also contributed to the steady KMB share prices.

CMB fare increase in 1972

21. In reply to a member on the reason for tabling in LegCo in 1972 as subsidiary legislation the fare increase of the CMB, Mr Isaac CHOW said that the reasons were not available despite searches through the file records and he would not rule out the possibility of a clerical error. On this, Mr Lyndon Rees commented that the 1972 CMB fare increase was the first increase in public transport fare after the 1967 riot brought about by the 5-cent increase in the Star Ferry fare, and the Administration was very concerned about the CMB fare increase. It therefore took precaution for the 1972 CMB fare increase to be approved by LegCo. Mr Barma emphasised that these were only Mr Reess personal views.

Background of the existing mechanism

22. On the background of the existing legislative framework concerning bus fare increase mechanism, Miss Eliza LEE reported that bus fare revisions had always been determined by the Governor in Council as stipulated in the then Public Transport Services (Hong Kong Island) and the Public Transport Services (Kowloon and New Territories) Ordinances passed on 15 February 1960. The mechanism was retained in the present PBSO when the Ordinance was passed on 18 December 1974 under the name of Public Omnibus Services Ordinance. Miss LEE added that the objectives of the mechanism had been explained to the then LegCo Members in 1960 and 1974 by the then Financial Secretary and the Attorney General respectively and the details were recorded fully in the Hansard.

23. A member suggested that the role of the Transport Advisory Committee should be strengthened, that the monitoring system for public transport be standardized and that market competition be used to promote self-regulation of the public transport operators. Mr Barma agreed to consider these suggestions and Hon Mrs Miriam LAU, in her capacity as the Chairman of the LegCo Transport Panel, indicated that the Transport Panel could also take these issues up.

The Chairmans Concluding Remarks

24. The Chairman thanked parties concerned for their views on the Bill. He invited the Bills Committee members to stay behind to discuss the way forward.

Way Forward

25. Members agreed to request the Research & Library Services Division of the LegCo Secretariat to conduct a research into the Monitoring of Bus Services in Overseas Countries for reference by members of the Bills Committee and the LegCo Panel on Transport; the study was to be completed in two months time. Hon LAU Chin-shek did not raise any objection to such a research. He indicated that he would consider the findings of the research but that he might also decide to resume the second and third reading debate of the Bill before completion of the research report.

26. As regards the date of the next meeting, members decided to await the research report and the decision of Hon LAU Chin-shek. At the request of members, Hon LAU Chin-shek agreed to keep the Bills Committee informed of his intended follow-up actions.

27. There being no other business, the meeting ended at 7:05 pm.

Council Business Division 1
LegCo Secretariat
29 July 1996

Last Updated on 10 December 1998

Bills Committee on Public Bus Services (Amendment) Bill 1996

Minutes of the First Meeting held on Tuesday, 7 May 1996 at 4:30 pm in the Chamber of the Legislative Council Building

I. Election of Chairman

II. Presentation by Hon LAU Chin-shek