PLC Paper No. CB(1) 162
Ref: CB1/HS/1/97

Paper for the House Committee meeting
on 22 August 1997

Report of the Subcommittee on
Resolution under section 5(3)(b) of the
Public Bus Services Ordinance (Cap. 230)

Purpose

This paper reports on the deliberations of the Subcommittee on Resolution under section 5(3)(b) of the Public Bus Services Ordinance (Cap. 230) (the Subcommittee).

Background

2. The Administration gave notice to move the above Resolution at the Provisional Legislative Council (PLC) meeting on 20 August 1997. The purpose of the motion is to seek PLC approval to exclude the application of the Profit Control Scheme (PCS) to the new franchise granted by the Chief Executive in Council to the Kowloon Motor Bus Company (1933) Limited (KMB), commencing on 1 September 1997. The PCS, which is set out in sections 26 to 32 of the Public Bus Services Ordinance (the Ordinance), limits the profit that a bus company may make in an accounting year by reference to a percentage per annum on its average net fixed assets (ANFA) as specified in its franchise. KMB current franchise is subject to a PCS, which caps the annual permitted return KMB may make to a sum equivalent to 16% of its ANFA.

3. Given that the current policy for processing fare increase applications is to take into account, particularly operating costs and revenue, performance and public affordability rather than to provide for a profit level based on a percentage rate of return on ANFA, the Administration approach has been to exclude all references to a PCS when negotiating new bus franchises. However, section 5(3)(b) of the Ordinance stipulates that a franchise granted by the Chief Executive in Council shall, except where the Legislative Council by resolution excludes the application of all or any of the provisions of PCS, be subject to PCS, it was therefore necessary to disapply sections 27, 28, 29 and 31 of the Ordinance, which govern the operation of PCS, whilst retaining-

1. section 26 which defines the terms used in the following sections;
2. section 26A which specifies that financial penalties levied against a bus company shall not be taken into account in ascertaining the operation cost or service related expenditure of the company;
3. section 30 which enables Government to specify depreciation rates in respect of fixed assets used or kept by a bus company for the purpose of or in connection with its franchise; and
4. section 32 which requires a bus company to produce accounts and other information in relation to the public bus service operation as the Financial Secretary may require. The Resolution, if passed, will bring KMB new franchise into line with the franchises granted to the Citybus Limited and the New Lantao Bus Company (1973) Limited.

4. Upon request of the House Committee, the Administration agreed to defer moving the Resolution to the PLC meeting on 27 August 1997.

The Subcommittee

5. The Subcommittee comprises 10 members with Dr Hon HO Chung-tai elected as Chairman. The membership list of the Subcommittee is at the Appendix. The Subcommittee met on 15 August 1997 and invited the Administration to provide background information on its intention to repeal the relevant provisions of PCS in the Ordinance. The Subcommittee completed its deliberations in one meeting.

Deliberations of the Subcommittee

6. Some members notice that under the existing PCS, profit exceeding the permitted return in any year will be retained in a development fund. When profit falls below the permitted return, the bus company may make good the shortfall by drawing money from the development fund, thereby reducing pressure on fares. Members are concerned that the proposed abolition of KMB PCS may have adverse impacts on bus fares and enquire about the monitoring mechanism in place to ensure effective operation of KMB on the one hand and consumer protection on the other. The Administration emphasizes the need for new bus franchises to balance the requirement of a franchisee to provide a satisfactory service and for the franchisee to make a reasonable return on its investment having regard to such factors as risk and operating costs.

7. As regards monitoring mechanism, a multi-level approach has been adopted in monitoring the performance of franchisees. At the management level, the Chief Executive can, by virtue of the Ordinance, appoint not more than two Government officials to the board of directors of franchisees. These officials shall be entitled to participate at meetings of the franchisees and to have access to all materials concerning the affairs of the franchisees. Franchisees are also required to submit to the Transport Department (TD) a planning programme of the operations for the following five years, which shall contain a bus route development programme, an estimate of the overall number of buses required to meet the daily public bus service requirements, a programme for the provision and equipment of premises necessary for the construction, repair and maintenance of vehicles, and a forecast of the financial implications of the adherence to the overall programme etc. The Transport Advisory Committee (TAC) and district boards will be consulted on such planning programmes. Regular meetings at the working level will be held between the franchisees and TD to ensure the quality of services of these franchisees.

8. In response to members�question on the yardstick for easonable return� the Administration advises that this will be assessed taking into account information such as analysis provided by financial institutions and other related professionals.

9. On bus fares, the Administration advises that both TAC and the Panel on Transport will be consulted on applications for fare increases prior to their submission to the Chief Executive in Council for approval. Factors such as operating costs and revenue, performance, public acceptability will be taken into account in processing these applications. The Administration is also considering expanding the membership and terms of reference of TAC with a view to strengthening its monitoring role. The Panel on Transport will be consulted in due course upon release of the proposal. While agreeing with the need to enhance the role of TAC, members consider it necessary to have a definite time frame on when the consultation will take place. The Administration undertakes to revert back to the Panel in about three months�time.

10. Members are generally supportive of the Resolution but emphasize the need for a monitoring mechanism to ensure the service quality and to control the fare increases of KMB after the abolition of PCS.

Advice sought

11. Members are invited to note the deliberations of the Subcommittee.

Provisional Legislative Council Secretariat
20 August 1997