Mr Jack SO advised that MTRC's fares would be increased by an average of 6.9% with effect from 1 May 1996. The rate was lower than the actual inflation rate of 8.7% for 1995 and the projected inflation rate of 7.5% for 1996; the overall average fare increase would be from the existing level of $5.95 to $6.36. Mr SO said that the revision was in accordance with the MTRC's strategy of reviewing its fares annually in line with inflation. At the same time, staggered hours discounts applicable to passengers using stored value tickets would be expanded to all movements rather than just yellow to purple zone journeys, and the discount would be revised to an equivalent of 30% of the corresponding normal fares so as to promote territory-wide acceptance of staggered working hours. He emphasised that the MTRC was running on prudent commercial principles and fare revenue was required to cover increased costs. Mr SO also drew attention to the fact that the MTRC was one of the most efficient railway systems in the world which could maintain an operating profit before interest and depreciation at 55% without any subsidies from tax revenue. One reason for such an achievement was effective control of operating costs. Mr Eddie SO then briefed Members on the fare revision as detailed in the LegCo Brief.

2. Members of the Democratic Party and the Hong Kong Association for Democracy & People's Livelihood and some other Members expressed objection to the fare revision. They were of the view that the MTRC had abused the power of fare increase without giving due regard to the prevailing economic situation. They pointed out that:

(a) the MTRC had a social responsibility towards the public. With a profit of $1.2 billion for 1995 and a similar projection for 1996, the current fare revision was not justified;

(b) the fare increase would exert inflationary pressure on the economy as other public transportation companies would introduce similar revisions; and

(c) although the overall increase of 6.9% was below the inflation rate, the fares of over 70% of passengers would increase by 7% or more. The impact would be particularly hard on cross harbour passengers.

A Member suggested that instead of charging significantly higher fares for cross harbour journeys, the fare should be based on the distance travelled or related to the number of stations in a journey. This view was echoed by some Members who felt that higher cross harbour fares at the commencement of operation of the cross harbour line was understandable in view of the massive construction cost of the cross harbour railway tunnel. However, since the capital cost would have been fully recovered, cross harbour fares should now be linked to operating costs. Members of the Democratic Party supplemented that they would propose a Member's Bill to empower LegCo to monitor MTRC fare revisions.

Commercial Principles

3. Mr Jack SO re-iterated that the decision to revise fares in line with inflation was based on commercial principles of recovering operating costs and generating sufficient funds for long term maintenance and improvement projects, and to service and repay debts. He said that the MTRC was not a welfare organisation and neither had it abused the statutory fare-setting power. Mr Rob Noble added that the proposed revision had taken into consideration the views of passengers, market conditions, competition environment and the need for additional income. On MTRC's social responsibility, Mr SO said that the fare increase was necessary not only to cover costs but also to enhance service standards and develop capital projects. He said that the MTRC had always aimed at containing costs and keeping fare increases as low as possible. If the actual fare increase was much lower than inflation, this would not yield a reasonable return on MTRC's investment and the railway service would have to be subsidised by the community instead of being paid for by users.

Credit Rating

4. In response to a Member on the MTRC's estimated surplus for 1996 without the fare revision, Mr Eric TANG informed that the projected surplus would be reduced by $200 - 300 million. He emphasised the need for the Corporation to service its debts. Mr Jack SO stressed that he did not consider that the MTRC was taking the lead in fare increases. He cautioned that the freezing of fares for one year would set a dangerous precedent. This would have the adverse effects of affecting future income forecasts, upsetting the MTRC's credit standing, increasing the cost of borrowing which would in turn increase operating costs, destroying the secured financial resources for undertaking long term maintenance and improvement programmes which would affect safety and efficiency, affecting the ability to repay debts and thereby weaken the MTRC's financial capability for launching further capital projects.

5. On the effect of a zero or lower fare increase, Mr Roger Moss explained that the MTRC had a statutory obligation to operate on prudent commercial principles, and the financial management of the Corporation was held in high regard by other countries. If there was no fare revision for 1996, not only would profits for the year be affected, but it would also lower the base for future years and thereby affect overall return. Credit rating agencies did have regard to the MTRC's prudent commercial practice. A lower credit rating would have significant impact on the MTRC's future ability to borrow and result in heavier interest payments. This would work against the public interest. Some Members however did not share this view. They pointed out that the Kowloon Motor Bus Co Ltd could apparently cope with a significantly lower fare revision than originally proposed.

Interest Payments

6. Some Members noted that while reporting sizeable annual surpluses on the one hand, the MTRC had to make high level interest payments on loans on the other. They sought clarification on the rationale and on the effect of the drop in interest rate on the repayment. Mr TANG explained that outstanding loans would have to be serviced with interest payments and it would be prudent to have a reasonable level of lending for most well run commercial organizations. On the second point, Mr Jack SO said that loans were under different categories of short, medium and long-term loans. A drop in interest rates might not significantly lower the amount of interest payments, especially when substantial portions of the loan were on fixed rate.

Fare Structure

7. As regards the suggestion for basing fares on the number of stations in a journey, Mr Noble explained that two different fare structures were in operation: cross harbour and intra Island or intra Kowloon. The relatively high cross harbour fares followed the practice of the bus companies. He added that since 1980, the annual increase of MTRC fares had always been lower than those of comparable routes of other operators. Mr Eddie SO added that the findings of a passenger survey revealed that passengers considered that long distance cross harbour services offered the best value for money. He reported that over the past 16 years of operation, the average annual fare increase for a trip between Kwun Tong and Central was 8.4% (from $3 to $12.1), which was comparable to that of 8.2% between Admiralty and Central (from $1 to $3.9). Mr Jack SO cautioned that if increases were evenly spread among passengers, non-cross harbour passengers might be dissatisfied. Overall, such a fare structure was essential to keep up with costs.

Methodology

8. On the methodology for arriving at the average increase figure of 6.9%, Mr Eddie SO referred to the table at the Annex and confirmed that the figure was a weighted average, taking into account the patronage figures for all the eight fare zones. At a Member's request, Mr Jack SO undertook to provide the Panel with a spreadsheet containing detailed information on fare increases for each fare zone.

(Post-meeting note : The spreadsheet was circulated to Members vide LegCo Paper No. CB(1) 1343/95-96 dated 2 May 1996.)

Staggered Hours Discount

9. A Member recalled that the main purpose of introducing staggered hours discounts along the Nathan Road route was to ease congestion in this area. He enquired if the expansion of the scheme implied that the congestion no longer existed. Mr Eddie SO said in reply that 77,000 passengers were currently travelling along the Nathan Road Corridor daily against a target capacity of 80,000. With an increased number of peak-hour services from 32 to 34 per hour in mid 1996, the target capacity would be further increased to 85,000. Congestion had therefore been relieved and the 1996 demand was expected to be within the tolerable level. Expansion of the scheme would promote the adoption of staggered working hours for the benefit of the whole community. It would also be a simpler scheme for passengers to comprehend.

10. A Member sought elaboration on the efforts of the Administration and the MTRC in the promotion of staggered working hours. In reply, Mr Isaac CHOW said that the Administration had issued a circular to Government Departments to encourage staggered working hours. Implementation would be decided by respective Heads of Departments having regard to the need to provide services to the public. Also, the Administration had given support to the MTRC in a recent promotional campaign targetted at the private sector. Mr Jack SO pointed out that the MTRC had recently organised a promotional activity in conjunction with the Community Chest. He reckoned that more companies in the Central District were supportive of the idea of staggered working hours.

Airport Railway Project

11. To address Members' concern on whether fare revenue so generated would be channelled to financing the Airport Railway project, Mr Jack SO affirmed that each project was financially independent. Surplus from one project would be spent on improvement programmes for that project. Mr Moss also assured Members that although the Corporation only maintained one set of statutory accounts, there would not be any "cross-subsidy" between the two networks. Progress Reports on Airport Railway were provided to the Panel on a quarterly basis and were also shown in the annual report. In response to a Member on the directors' salaries as part of the project costs of the Airport Railway, Mr Moss advised that directors' salaries were charged to the project based on time spent and now some 5% has capitalised.

II. Fare Revision of the Kowloon-Canton Railway Corporation (KCRC)

(LegCo Brief Ref.: TBCR 10/5591/78(96) Pt 7 dated 27 March 1996 and 3 KCRC booklets tabled at the meeting)

12. Mr Kevin Hyde reported that the KCRC had reviewed its fares for 1996 and had decided on an average increase of 6.8% for the heavy rail and 8.7% for the light rail services. About 90% of respondents to an independent survey considered that a fare increase of about 7.7% was reasonable and affordable. Mr Samuel LAI and Mr Jonathan YU then briefed Members on the new Heavy Rail and Light Rail Transit (LRT) fares respectively. The overall average increase of the former was lower than the actual inflation rate of 8.7% for 1995 and the projected inflation rate of 7.5% for 1996; the increase for the latter was in line with the inflation rate for 1995.

Fare Freeze in 1994

13. A Member enquired about the source of the family income data quoted in one of the KCRC booklets and the rationale for a fare revision in the light of accounting surpluses. Mr YU advised that the family income growth data were based on available information from the Census and Statistics Department. As improvement in services was essential, a reasonable increase in fare was required to generate daily operating cash to achieve the targets. In response to Members on the possibility of a fare freeze similar to that in 1994, Mr Hyde explained that the 1994 freeze was possible because of a planned significant productivity improvement and cash surpluses from property income. In 1996, the same substantial rate of increase in productivity was unlikely and neither would there be any windfall property profits. A similar fare freeze would therefore not be possible in 1996. At a Member's request, Mr Hyde undertook to provide elaboration on the statement in one of the KCRC's booklets relating to the 1994 fare freeze that "opportunities were diminishing for further costs saving."

KCRC

14. At a Member's request, Mr LAI undertook to provide a breakdown of patronage by fare zones and the percentage increase of each fare zone. As regards the overall average percentage increase, he advised that the percentage was a weighted average, taking into account the patronage figures for all the fare zones. In essence, the overall average rate of increase represented the actual increase in KCRC's revenue after implementation of the proposed fare revision.

KCRC

15. On the basis of revision for individual fare zones, Mr LAI explained that the fare for single short-distance journeys would normally be adjusted every 2 years to reflect the cumulative increase for both years. This was so because the ticket vending machines could only handle changes to the nearest 50 cents for single journey tickets which meant that, in most cases, fare increase other than for common-stored-value-tickets had to be rounded up to the nearest 50 cents. For stored value ticket fares, the increase would be more flexible and annual increases were possible. With the launching of the smart card system however, such a problem might disappear. He further informed that at the request of the Shatin District Board, the Fo Tan and the Shatin Stations were now in different fare zones.

Freight Division

16. In response to Members on the comparatively low profits from the Freight Division, Mr Hyde admitted that the Division was operating in a very competitive environment. Trucking and barging operations and other forms of freight movements were strong competitors. Furthermore, this area of the KCRC's activities was dependent heavily on the operations of the Chinese Railway. He emphasised however that the contribution of the Division which was at over $70 million a year was still quite substantial.

Profit and Loss Forecast

17. In referring to the long-term cash flow requirements of the KCRC, a Member sought elaboration on the significant interest/loan repayment of $2.4 billion for the years 1996 to 1998. In reply, Mr Hyde explained that in the short term, the KCRC was investing more than its earnings from business activities, and loans were required to provide cash for projects in the pipeline. Over the next three years, the KCRC would need to utilise credit facilities to borrow funds to meet operating cash outflow.

18. A Member enquired if a 5-year profit and loss forecast could be provided and if external auditors were engaged to monitor the expenses of the capital programmes. Mr Hyde clarified that the KCRC had a business planning cycle of three years. The relevant proforma accounts had been circulated to Members at the meeting on 1 March 1996. As regards the amount of $7.5 billion in respect of capital programmes in the coming three years, Mr Hyde advised that this represented the likely tender costs. He also confirmed that the KCRC's accounts were subject to audit by external auditors.

Affordability

19. A Member asked if Tuen Mun residents were able to pay the new LRT fares, bearing in mind that some might also need feeder buses or other connections to reach their destinations. Mr YU explained that according to an LRT survey, only less than 10% of LRT passengers had final destinations outside the LRT network. He informed that for most residential estates in Tuen Mun and Yuen Long, there was at least one direct bus route to Kowloon or Tsuen Wan/Kwai Chung area. As the base of the LRT ticket was very low at around $3, the actual increase in monetary terms would only be about 30 - 50 cents. The increase per trip for multi-ride ticket users would be much lower. The result of the LRT survey did conclude that the new LRT fares were affordable.

Traffic Accidents

20. Members expressed concern about traffic accidents involving light rail carriages. Such accidents impaired efficiency, blocked or paralysed traffic, and necessitated costly repair works or even total write-off of equipment. All these had an adverse impact on the profitability of the LRT. Some Members urged the LRT to enhance operational safety by constructing flyovers for vehicles at black-spot road junctions.

21. Mr YU and Mr CHOW clarified that the rate of accidents involving LRT carriages was not particularly high, given the inherent constraint of the need to share the use of road surface with other vehicles. Mr YU added that there had not been any incident so far which caused a complete breakdown of LRT services, and that LRT feeder buses were providing effective supplementary services during LRT service disruptions. Mr CHOW advised that the Administration would install red light cameras at selected road junctions to encourage motorists to abide by traffic signals. Some Members asked for statistics on LRT accidents in the past years and on the number of suspended hours of LRT services due to accidents; they emphasised that the end of the suspension time should only count from re-commencement of the LRT service and not the time when feeder buses became available.

KCRC

Views of the Executive Council

22. In response to the Chairman on the views of the Executive Council (ExCo), Mr CHOW advised that ExCo Members had taken note of the fare revision. He said that in the past , there had been one occasion on which the effective date of fare increase was delayed at the request of the ExCo. As far as the present fare revision was concerned, he confirmed that the ExCo had not made any particular comments.

23. As regards interaction with the Transport Advisory Committee (TAC), Mr CHOW said that the MTRC and the KCRC would make a point of briefing the Panel and the TAC on fare revision proposals. Views expressed by Members of the Panel and the TAC would be taken into account by the two Corporations.

III. Any Other Business

24. The Chairman reminded Members that the next regular meeting would be held on 11 April 1996 at 8:30 a.m. There being no other business, the meeting ended at 10:45 a.m.

LegCo Secretariat
3 May 1996

Last Updated on 21 Aug. 1998

LegCo Panel on Transport

Notes of the Special Meeting held on Wednesday, 27 March 1996 at 8:30 am in the Chamber of the Legislative Council Building

Notes of the Special Meeting held on Wednesday, 27 March 1996 at 8:30 am
in the Chamber of the Legislative Council Building