Assistant Commissioner for Transport
Transport Department
Attendance by Invitation :
- The Kowloon Motor Bus Co (1933) Ltd
Mr John CHAN, CBE, LVO, JP
- Managing Director
- Mr Charles LUI
- Director & General Manager
- The China Motor Bus Co Ltd and Linklaters & Paines
- Mr Richard Davies
- China Motor Bus Co Ltd
- Mr Arthur MAK
- China Motor Bus Co Ltd
- Mr Raymond M Cohen
- Linklaters & Paines
- The Citybus Ltd
- Mr Lyndon Rees
- Managing Director
- Mr Samuel CHENG
- General Manager
- Ms Christine LAU
- Public Relations Manager
- The New Lantao Bus Co (1973) Ltd
- Mr LI Tse-cheung
- Director
Staff in Attendance :
- Mrs Vivian KAM
- Chief Assistant Secretary (1)2
- Mr Arthur CHEUNG
- Assistant Legal Adviser 5
- Mr Billy TAM
- Senior Assistant Secretary (1)4
(Brief for LegCo from Hon LAU Chin-shek dated 15 April 1996 at Annex)
The Chairman advised that the special meeting had been called in order for Hon LAU Chin-shek to present the Public Bus Services (Amendment) Bill 1996. The Administration was invited for the purposes of receiving the briefing and providing its initial response on the proposed Bill. Representatives of the four bus companies which had made representations on the Bill had also been invited to the meeting. Of these, the Kowloon Motor Bus Co (1933) Ltd (KMB) had asked to make a presentation to the Panel. The Chairman emphasised that the meeting was not intended to be an occasion to debate on or to scrutinize the Bill. A Bills Committee had in fact been formed for the purpose and would be activated in due course.
2. At the invitation of the Chairman, Hon LAU Chin-shek briefed the meeting on the Bill by referring to the Brief for LegCo dated 15 April 1996 at the Annex. He pointed out that anomalies existed in the approval of fare revisions of public transport companies. He quoted for example that fare revisions of ferries, trams and taxis required enactment of the relevant subsidiary legislation by LegCo. He emphasised that he had no intention of obstructing bus fare increases through the proposed Bill. Rather, he deemed it necessary for LegCo to have a better understanding of the rationale for the fare revisions and in particular the fluctuations in profit forecasts submitted by bus companies, and the relationship between fare increases and profitability so as to determine whether applications for fare revisions were justifiable and reasonable. In essence, the Bill sought to put in place a monitoring role by the LegCo.
3. In reply to a member on the possible inconsistency between the proposed Bill and the franchise agreements reached by the Government and the franchisees, Hon LAU Chin-shek pointed out that there was no express provision in the existing Public Bus Services Ordinance (PBSO) (Cap. 230) which stipulated that the mechanism for approving bus fare increases could not be changed by LegCo.
4. Mr John CHAN of the KMB presented KMB's views on the proposed Bill by referring to the company's representation dated 14 February 1996. He highlighted five main points:
(a) the Bill constituted a substantive amendment to the KMB franchise and full consultation was called for;
(b) the authority to determine bus fares rested with the Governor in Council and it would be inappropriate to transfer it to the legislature;
(c) the Bill might result in negating the provisions in the KMB franchise relating to a permitted return but it had made no corresponding provision for compensation;
(d) the Bill would have far-reaching implications on KMB's operations and would discourage investments in the company which were necessary for the improvement of its services; and
(e) the present system of determining bus fares was working well and struck a correct balance between the interests of the KMB and the public.
5. Mr CHAN emphasised that fare determination only formed a part of the monitoring of the operation of franchised bus companies. According to the terms of the franchise, every minute aspect of the daily operation of a franchised bus company was closely monitored through the legal requirement of submitting annually a five-year Forward Planning Programme and the daily monitoring by the Transport Department and the Transport Branch. This was a very complicated and thorough process. Mr CHAN reckoned that the standard of service of KMB was among the highest in the world and that the fares charged were very reasonable. There was also a need for the company to maintain reasonable profits so as to effect service improvements. He was worried that political factors would be brought in if the authority for determining bus fares was transferred to the LegCo. He reiterated that without being involved in the daily monitoring of bus operations, the LegCo would not be in a position to arrive at a balanced conclusion in its evaluation of fare increase applications.
6. In response to a member on the profit forecast of KMB for the current year, Mr CHAN said that the recent fare increase of 2.7% approved for the company was expected to bring in profits of about 13%. He cautioned however that the figures were at best estimates and that it would not be possible to draw up wholly accurate profit and loss forecasts. He added that under the profit control scheme, profits earned by KMB in excess of the permitted return of 16% would not be distributed to shareholders but would instead be transferred to a development fund.
7. In response to Hon LAU Chin-shek on the existence or otherwise of a guarantee that there would be no change to the bus fare revision mechanism, Mr CHAN was of the view that this was KMB's clear understanding when the franchise was drawn up and that section 13 of the PBSO also stated clearly that fares would be determined by the Governor in Council. Although he accepted that LegCo did have the power to amend the Ordinance, Mr CHAN emphasised the need for the terms of the franchise to be negotiated with the franchisees. If Government were to change the terms of the franchise unilaterally, the KMB would seek recompense.
8. On the possible financial loss which might be brought about by the proposed Bill, Mr CHAN explained that fare increases would be delayed by at least 28 to 35 days. An earlier submission of fare revision proposals might not be possible as financial data for preparing the forecasts would not be available earlier.
9. Mr Haider Barma advised that the Administration firmly opposed the Bill. He stressed that the authority for approving bus fares rested with the Governor in Council. The tabling of the fare increase application of the China Motor Bus Co. Ltd. (CMB) in LegCo in 1972 as subsidiary legislation was not required by law per se and should not be cited as normal Government practice. Although fare revision for other public transport companies such as 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 wanted a uniform approach. He emphasised that public transport companies were relied upon to provide service to the public and that it was necessary to ensure a fair and adequate return for such companies. He clarified that the proposed Bill had no bearing on the recent pruning of KMB fare increases, as claimed by Hon LAU Chin-shek.
10. In continuing, Mr Barma advised that all bus fare increase applications were vetted stringently by the Government and the rate applied was not necessarily granted. For example, KMB and CMB fare increase applications were slashed two years ago. On the fare increase mechanism, Mr Barma said that the understanding between the Government and the bus operators at the time when the franchises were negotiated was that the power of approving fare revisions was vested in the Governor in Council. The proposed Bill had a material impact on the existing franchisees as it undermined the basis upon which the current franchises were negotiated. Such a fundamental change might not be accepted by the bus companies. However, should the proposed Bill be passed, all new franchises would be subject to the law then prevailing.
11. As regards the accuracy of the profit and loss forecasts presented by bus companies, Mr Barma considered that forecasts could not be 100% accurate. Moreover, bus companies would always aim at enhancing savings to achieve a better return. He agreed that bus companies should draw up such forecasts as accurately as possible.
12. Members took note of the foregoing points raised by the parties concerned. They sought further views on the following in relation to the proposed Bill:
(a) possible legal challenge by the bus companies if the terms of the franchise were materially affected;
(b) the franchise and the profit control scheme in force;
(c) the profitability of the bus companies; and
(d) the existing monitoring mechanism of bus fare increases, including the possibility for elected representatives or members of the public to monitor bus fare increases.
13. On (a) above, Mr Barma undertook to seek legal advice. As regards (b), he advised that the grant of franchise for bus services was provided for under section 5 of the PBSO, and negotiation was solely a matter between the Government and the bus company concerned. While the Government had consciously kept LegCo Members informed of developments through various means, the LegCo did not have any legal power to approve or amend the franchise except that in accordance with section 5(3)(b) of the PBSO, the LegCo might by resolution exclude the application of all or any of the provisions of the profit control scheme. Mr Isaac CHOW supplemented that sections 26 to 32 of the PBSO spelt out such a scheme which was at present applicable to the KMB only. The Administration was in the process of negotiating a new franchise with the KMB and was aiming at a removal of the scheme altogether. In case the profit control scheme was not applicable to any bus company, the relevant sections in the PBSO would be repealed. In response to a member, the Assistant Legal Adviser affirmed that LegCo's role in relation to sections 26 to 32 of the PBSO was limited to disapplying the scheme of control to bus franchises.
14. In commenting on (c) relating to the profitability of bus companies, Mr CHAN said that there was no guarantee that bus companies would not suffer any business losses. Mr Samuel CHENG of the Citybus Ltd pointed out that the company suffered loss in 1991 when it was a non-franchised bus company. He added that the profit in 1994 after one year of franchised operation was only about $4 million. Such profit was only possible as the company took over established routes and did not need to develop new routes to build up patronage. Otherwise, losses in the first few years of franchised bus operation would not be uncommon.
15. On point (d) regarding the monitoring mechanism of bus fare increases, Mr Barma advised that as far as the legal process was concerned, the Government had no intention to change the current practice. Whilst it was proper for LegCo to vet Government fees and charges which affected public revenue, the same approach should not be applied to transport fares as it would deter private sector investment and undermine a company's ability to raise loans. He considered that a satisfactory consultation system had developed well in the past years, and that the present monitoring mechanism was working well.
16. The Chairman thanked parties concerned for their views on the proposed Bill. She concluded that since the Panel had had the opportunity to discuss the Bill, the Panel would leave it to the Bills Committee to examine the Bill in greater detail.
17. There being no other business, the meeting ended at 12:00 noon.
Council Business Division 1
LegCo Secretariat
5 June 1996
Last Updated on 21 Aug. 1998
