PLC Paper No. LS 13

Paper for the House Committee Meeting
of the Provisional Legislative Council
on 8 August 1997

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

The Secretary for Transport has given notice to move the passage of the above resolution at the Provisional Legislative Council meeting on 20 August 1997. The purpose of the motion is to seek the Provisional Legislative Council approval to exclude the application of the profit control scheme to the new franchise granted by the Chief Executive in Council to the Kowloon Motor Bus Company (1933) Limited (㞠MB�.

2. Under section 5(3)(b) of the Public Bus Services Ordinance (Cap. 230) (懀he Ordinance�, 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 the profit control scheme, be subject to the profit control scheme. The profit control scheme, which is set out in sections 27, 28, 29 and 31 in Part V of the Ordinance, limits the profit that a bus company may make in an accounting year commonly known as the permitted return by reference to a percentage per annum on its average net fixed assets as specified in its franchise.

3. KMB current franchise is subject to a profit control scheme and caps the annual permitted return to a sum equivalent to 16% of its average net fixed assets. Profit exceeding the permitted return in any year will be retained in a development fund. When profit falls below the permitted return, the company may make good the shortfall by drawing money from the development fund, thereby reducing pressure on fares.

4. According to the draft speech of the Secretary for Transport, the Government current policy for processing fare increase applications is to take various factors into account, particularly operating costs, performance and public acceptability rather than to provide for a profit level based on a percentage rate of return on average net fixed assets. Because of this practice, the Government approach has been to exclude all references to a profit control scheme when negotiating new bus franchises.

5. The new franchise will confer upon the KMB the right to operate a public bus service on 368 routes specified in the Schedule of Routes (Kowloon Motor Bus Company) (No. 2) Order 1997 (L.N. 394 of 1997) and in any subsequent order made by the Chief Executive In Council.

6. If passed, the effect of the resolution is that the KMB new franchise will not be subject to the profit control scheme. This will bring KMB new franchise into line with franchises granted to the Citybus Limited and the New Lantao Bus Company (1973) Limited.

7. For further information on KMB new franchise, Members may refer to PLC Brief ref. : TBCR 3/5591/94(97) Pt.9 issued by the Transport Bureau on 15 July 1997.

8. The legal and drafting aspects of the draft resolution are in order.

Prepared by

Fung Sau-kuen, Connie
Assistant Legal Adviser
Provisional Legislative Council Secretariat
5 August 1997