LegCo Paper No. CB(1) 1334/96-97
(These minutes have been seen
by the Administration)
Ref : CB1/BC/56/95/2

Bills Committee on Mass Transit Railway Corporation (Amendment) Bill 1996 and Kowloon-Canton Railway Corporation (Amendment) Bill 1996

Minutes of meeting held on Wednesday, 5 March 1997, at 8:30 am in Conference Room A of the Legislative Council Building

Members present :

    Hon Zachary WONG Wai-yin (Chairman)
    Hon Edward S T HO, OBE, JP
    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Hon LEE Wing-tat
    Dr Hon Samuel WONG Ping-wai, OBE, FEng, JP
    Hon CHAN Kam-lam
    Hon LAU Chin-shek
    Hon Ambrose LAU Hon-chuen, JP
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai
    Hon TSANG Kin-shing

Members absent :

    Hon Ronald ARCULLI, OBE, JP
    Hon CHAN Wing-chan
    Hon CHAN Yuen-han
    Hon Paul CHENG Ming-fun
    Dr Hon LAW Cheung-kwok
    Hon LEUNG Yiu-chung
    Hon Bruce LIU Sing-lee

Public officers attending :

    For Items II to IV

    Transport Branch

    Mr Gordon SIU, JP,
    Secretary for Transport
    Mr Isaac Y N CHOW
    Deputy Secretary for Transport
    Mr LAU Kwok-choi
    Principal Assistant Secretary for Transport

    Mass Transit Railway Corporation

    Mr Jack C K SO, OBE, JP
    Chairman and Chief ExecutiveMr Clement KWOK, Finance Director
    Mr Eddie SO
    Transport Planning Manager
    Mrs Miranda LEUNG
    Corporate Relations Manager
    Mr Eric TANG
    Controller

    Kowloon-Canton Railway Corporation

    Mr YEUNG Kai-yin, CBE, JP
    Chairman and Chief Executive
    Mr Samuel LAI, Director,
    East Rail
    Mr Barry CHOI
    General Manger - Corporate Affairs
    Mr Nick Hann
    Project Finance Director, HSBC Investment Bank Asia Ltd.

Clerk in attendance :

    Miss Polly YEUNG
    Chief Assistant Secretary (1)3

Staff in attendance :

    Mr Stephen LAM
    Assistant Legal Adviser 4
    Mr Matthew LOO
    Senior Assistant Secretary (1)4 (Atg)

I Confirmation of minutes of previous meeting

(LegCo Paper No. CB(1) 913/96-97)

The minutes of the meeting held on 17 January 1997 were confirmed.

II Briefing by Hon SIN Chung-kai

(Brief for LegCo on the Bills provided by Hon SIN Chung-kai issued on 8 July 1997)

2. At the Chairman’s invitation, Mr SIN Chung-kai briefed the Committee on salient provisions of the two Bills. The proposed mechanism to control fare increases through subsidiary legislation was similar to the current arrangements for fare increases of taxis and ferries. He disagreed with suggestions that the two Bills would adversely affect the autonomy and credit ratings of the two Corporations. In addition, he proposed the following capital raising alternatives with a view to reducing interest costs borne by the Corporations:

  1. the Government to secure loans from the financial markets and then lend the proceeds to the Corporations;

  2. the Corporations to borrow from the international financial markets with the Government as the guarantor;

  3. the Government to provide loans from the Capital Investment Fund; and

  4. the Corporations to raise capital from the local market.

Mr SIN emphasized the importance for the two Corporations to be monitored by the legislature and added that if the present Government was established by election, it would be in a position to take up this monitoring role. At some members’ request, he undertook to provide a copy of his position paper after the meeting.Mr SIN Chung-kai

(Post-meeting note : The position paper from Mr SIN Chung-kai were circulated vide LegCo Paper No. CB(1)1087/96-97 and copied to the Administration and the two Corporations for reference.)

3. Mrs Miriam LAU Kin-yee was concerned about the political pressure on the management of the two Corporations if the Bills were passed. She referred to her observations during the recent overseas study tour of the Transport Panel that mass transit systems in overseas cities had suffered from under-spending and under-investment as a result of political pressure to keep fares low. She recalled that members of the Transport Select Committee of the House of Commons, whom the delegation had met in London, also advised against direct involvement of parliamentarians in fare-setting. In response, Mr SIN opined that the key factor for the success of the railway systems in Hong Kong was high ridership due to a large population. As there was no elected form of Government in Hong Kong, Mr SIN doubted that the Administration would duly balance the interests of the public and the railway operators when monitoring fare increases.

4. On Mr SIN’s proposed alternatives of capital raising, a member pointed out that the Corporations were required to operate in accordance with prudent commercial principles and any change in this direction should be approved by the Governor-in-Council. In the event that their fare increase applications were turned down by LegCo under the proposed legislation, the Government would have to compensate the Corporations for the income loss from general revenue. He added that the proposed changes might be more appropriate when the Corporations became listed companies with shares being owned by members of the public. Mr SIN clarified in response that he was only seeking to propose possible means for the Corporations to raise capital if necessary. With the projected growth of the population in Hong Kong to some 8 million in 10 years and most of them residing in the New Territories, Mr SIN did not envisage any serious problem with revenue on the part of the Corporations.

III Meeting with the Administration

(Paper No. CB(1) 2071/95-96(03) - Administration’s response to the Bills)

5. The Secretary for Transport (S for T) noted Mr SIN Chung-kai’s concerns but had reservations on the approach to monitor and control fare increases of the two Corporations through subsidiary legislation. In essence, he pointed out that the MTRC and KCRC were Government-owned utilities and the mode of monitoring their operations was different from those for other public transport operators. Apart from the initial capital injection, the Government had not subsidized the Corporations and they had to raise funds for capital investment and operate in accordance with prudent commercial principles. Over the past decade or so, the two Corporations had taken into account public affordability in setting passenger fares, and were able to keep fare increases below inflation. The MTRC enjoyed high credit ratings which facilitated fund raising in the financial market. The Bills, if enacted, would upset the established mechanism and have an adverse impact on the costs of borrowing for financing major capital projects like the Western Corridor Railway (WCR), Tseung Kwan O Extension and Quarry Bay Congestion Relief Works. As regards Mr SIN’s proposal of enhancing the Government’s role in capital-raising, S for T undertook to provide a written response to the various points made by Mr SIN after the meeting. Admin

(Post-meeting note: The Administration’s written response was circulated to members vide LegCo Paper No. CB(1) 1167/96-97 on 2 April 1997.)

6. S for T added that in many overseas metropolitan cities, parliamentary pressure had often kept fares at a low level and mass transit systems had to be heavily subsidized by the Government. He also assured members that both Corporations had attached great importance to enhancing transparency and accountability all along, and would consider public views seriously when contemplating fare increases. On the basis of the reasons stated above, he reiterated that the Administration would not support the Bills.

IV Meeting with the Mass Transit Railway Corporation and the Kowloon-Canton Railway Corporation

Mass Transit Railway Corporation (MTRC)

(Paper No. CB(1) 2126/96-97 provided by MTRC)

7. Mr Jack SO briefed members on the position of the MTRC and stressed that the Bills would have a devastating effect on the operation and development of the railway systems. He said that if the Bills were passed, the Corporation’s credit standing would be adversely affected and its borrowing capacity reduced. Uncertainties over future revenue would also make long-term planning on maintenance and development difficult. In this connection, he referred members to past meetings of the Transport Panel during which members had exchanged views with representatives from a leading bank, an international credit rating agency and the University of London. In addition, he drew members’ attention to the planned privatization of the London Underground as an example and advised that the Bills were not in line with the worldwide trend of de-regulating public transport. He therefore urged members not to support the Bills.

8. Mr SO also advised members that Sir Wilfrid Newton, former Chairman of the MTRC and London Underground, would meet the Transport Panel and speak on the success and failure of mass transit railways. Mrs Miriam LAU Kin-yee confirmed that a special Panel meeting had been arranged on 14 March 1997 to meet with Sir Wilfrid Newton. Mr SO also informed members that the MTRC had invited an expert on the operational and financial aspects of the New York Subway to come to Hong Kong in April. As members indicated interest in meeting the expert, the MTRC would make the necessary arrangements.MTRC

(Post-meeting note : Speech by Mr Jack SO had been circulated vide LegCo Paper No. CB(1)1087/96-97)

9. In response to Mr SIN’s remarks earlier on, Mr SO said that to attribute the success of the MTRC to high population only would be unfair to the staff of the Corporation who had put in a lot of hard work in contributing to the success of the system. He made reference to the Indian system and said that dense population was not necessarily the key factor for success. Mr SIN clarified that there was no intention whatsoever to underrate the contribution of staff of the MTRC. He would take Mr SO’s advice to study the railway system in India. For comparative reference, S for T also suggested that members could look into the mass transit system in Tokyo where there was also a high population.

Kowloon-Canton Railway Corporation (KCRC)

(Paper No. CB(1) 2126/95-96 provided by KCRC)

10. At the Chairman’s invitation, Mr Samuel LAI briefed the Committee on the findings of the study commissioned by KCRC to assess the impact of legislative involvement on the fare setting process. Amongst the 37 surveyed railway systems, the fare setting process for those in Europe and North America were either determined by politically appointed boards or influenced by political bodies. This approach had resulted in inadequate fare increases and most of these systems were in deep financial crises. As regards Asian railway systems like Hong Kong and Singapore, the fare increases were mainly determined by the railway operators or the relevant ministry. Fare revenues could at least recover operating costs and these systems were commercially viable. Mr LAI pointed out that the fare setting process was usually designed to balance the needs of the railway operators with broader public interests. However, in many European countries, political influence would distort the process and lead to an ongoing need for subsidies. He emphasized that the Hong Kong system was considered to be exemplary.

(Post-meeting note: Presentation materials on the final report on "Fare setting process" had been circulated vide LegCo Paper No. CB(1) 1087/96-97)

11. As regards the credit ratings of KCRC, Mr Nick Hann of HSBC Investment Bank Asia Ltd advised that the ability to set fare was a corollary to the creation of certainty that the investment would produce sufficient cashflow to repay debts. Lenders’ confidence would be reduced if the Corporation had no control over fare levels and could not demonstrate fare revenue projections over the repayment period of debt. KCRC was currently developing a financing strategy to raise some $15 to 20 billion from financial markets for the proposed WCR project. The KCRC would not be able to borrow these amounts if it could not retain the autonomy to set fares.

(Post-meeting note: Speech by Mr Nick Hann had been circulated vide LegCo Paper No. CB(1) 1087/96-97)

12. Mr YEUNG also pointed out that looking at the ridership per km figure in isolation to evaluate the efficiency of a railway could be highly misleading. Other data, such as construction costs, maintenance costs, operating costs and standard of service, etc., must also be taken into account in arriving at a meaningful comparison. Both of them undertook to provide the requested information for members’ reference after the meeting. As regards interest payments, Mr SO responded that the interest incurred by the MTRC in 1995 was $1.28 billion. He undertook to provide the Committee with information on the accumulated amount of interest incurred on the debts of the MTRC since its operation in 1979.MTRC
KCRC

13. In reply to the Chairman, Mr YEUNG clarified that the expression "government involvement" in the KCRC’s submission should be "legislative involvement" in the fare setting process. In fact, Government involvement did exist in the Corporation as S for T and the Secretary for the Treasury were members on the Board of Directors of the KCRC.

V. Any other business

14. Members agreed to hold the next meeting in April to tie in with the visit of the expert from New York. Mr SIN also informed the meeting that he would proceed with his Member’s Bills and move the second reading before June 1997.

15. The meeting ended at 10:10 a.m.

Legislative Council Secretariat
21 April 1997

Last Updated on 16 December 1998