Panel on Transport (Minutes) 17 Oct 97

PLC Paper No. CB(1) 546
(These minutes have been
seen by the Administration)

Ref : CB1/PL/TP/1

Panel on Transport

Minutes of meeting held on Friday, 17 October 1997, at 8:00 am in Conference Room A of the Legislative Council Building

Members present :

Hon Mrs Miriam LAU Kin-yee, JP (Chairman)
Hon CHEUNG Hon-chung (Deputy Chairman)
Hon WONG Siu-yee
Hon Edward HO Sing-tin, JP
Dr Hon Raymond HO Chung-tai, JP
Hon LEE Kai-ming
Hon Henry WU
Hon YUEN Mo
Hon CHAN Choi-hi
Hon CHAN Wing-chan
Hon CHAN Kam-lam
Hon Andrew WONG Wang-fat, JP
Hon LAU Kong-wah
Hon CHOY Kan-pui, JP
Dr Hon TANG Siu-tong, JP
Hon NGAN Kam-chuen

Members absent :

Hon Mrs Selina CHOW, JP
Hon CHENG Kai-nam
Dr Hon LAW Cheung-kwok

Public officers attending :

Mr Kevin C M HO, JP: Secretary for Transport (Acting)
Miss Nancy LAW, JP: Deputy Secretary for Transport (Transport Management)
Mr Isaac CHOW, JP: Deputy Secretary for Transport (Transport Services)
Mrs Fanny LAW, JP: Commissioner for Transport

For item III only

Mr Davey CHUNG: Principal Assistant Secretary for Transport
Mrs Judy LI: Assistant Commissioner for Transport/Ferry and Paratransit

For items IV to VI

Mr K T LI: Principal Assistant Secretary for Economic Services
Miss Zina WONG, JP: Assistant Commissioner for Transport/Bus Development
Miss Cindy LAW: Principal Transport Officer/Bus Development

For item IV only

Ms Lily LAM: Chief Transport Officer

For item V only

Miss Alice Au-Yeung: Chief Transport Officer

Attendance by invitation :
For item IV only
Kowloon Motor Bus Co (1933) Ltd.

Mr John CHAN, JP: Managing Director
Mr Charles LUI: Director & General Manager
Mr John CHOY: Deputy General Manager & Secretary
Ms Doris LAU: Financial Planning & Costing Manager
Ms Winnie NG: Director & Public Relations Manager
Mr Mark LEUNG: Marketing, Planning & Development Manager

For item V only
China Motor Bus Co. Ltd.

Mr Arthur MAK: Chief Accountant
Mr Victor WONG: Personnel and Administration Manager
Mr David ROBINSON: Traffic Manager
Mr Richard DAVIS: Planning Manager

For item VI only
Citybus Ltd.

Mr Lyndon REES: Managing Director
Mr Samuel CHENG: General Manager
Mr Gareth NG: Assistant General Manager (Financial & Administration)

Clerk in attendance :

Ms Estella CHAN,: Chief Assistant Secretary (1)4

Staff in attendance :

Ms Pauline NG,: Assistant Secretary General 1
Mr Andy LAU,: Senior Assistant Secretary (1)6

I.Information papers issued since last meeting

(PLC Paper No. CB(1)213 - A letter from The 'star " Ferry Company, Limited on franchise renewal of ferry services

PLC Paper No. CB(1)234 -An information paper on Taxi Licence Premiums

PLC Paper No. CB(1)235 -A report on " Public Light Bus Policy Review " prepared by the Transport Advisory Committee

PLC Paper No. CB(1)295 -The minutes of the meeting held on 26 August 1997 between the Transport Department and the Motor Transport Workers General Union on inter-district bus-only lanes

PLC Paper No. CB(1)336 - A joint submission from 19 passenger shipping companies requesting a reduction or abolition of embarkation fees on passengers leaving Hong Kong by sea)

The Panel noted that five information papers had been issued since the last meeting.

II.Date of next meeting and items for discussion
(PLC Paper No. CB(1)322 - List of outstanding items for discussion)

2.Members agreed that regular meetings from January 1998 onwards would continue to be held on the second Friday of each month at 8:30 am. The meeting dates for the first quarter of 1998 were 9 January, 13 February, and 13 March.

3.Members noted that a special meeting would be held on 22 October 1997 to discuss the following:

Operation of the Octopus ticketing system;
Franchise of ferry services; and
Compatibility of the existing autotoll systems.

4.Members agreed to discuss the following items as suggested by the Administration at the next regular meeting to be held on 14 November 1997:

Amendment Bills 1997 for Cross-Harbour Tunnel and Tate's Cairn Tunnel Ordinances (air quality standards);
Trial of taxis using liquefied petroleum gas; and
Study to review Railway Development Strategy.

III.Additional fares for taxi passengers using cross harbour tunnels
(PLC Paper No. CB(1)333(01) - Information paper provided by the Administration)

5.At the invitation of the Chairman, the Assistant Commissioner for Transport/Ferry and Paratransit (AC/FP) briefed members on the salient points of the information paper. She said that following the arbitration sought by the operating company of the Eastern Harbour Crossing (EHC), the EHC tolls would be revised with effect from 1 January 1998. Consequently, a taxi using EHC would have to pay a toll of $15, instead of $10. In the light of this revision, it was necessary to review the return tolls payable by taxi passengers using the Cross-Harbour Tunnel (CHT), the EHC and the Western Harbour Crossing (WHC).

6.AC/FP said that the Administration had considered five options for revising the return tolls payable by cross-harbour taxi passengers vis-a-vis the EHC toll increase. Taking account of the traffic implications and the interests of the taxi trade and passengers, the Administration had recommended that the return toll be increased from $10 to $15 for taxi passengers using all three cross-harbour tunnels.

7.Whilst a member considered that the Administration's proposal would be relatively more effective in spreading out cross-harbour tunnel traffic as compared to other options, some other members had reservations about the effectiveness of the proposed charging arrangement and considered it more appropriate to reduce the tunnel toll of WHC. Some members also considered it unfair for taxi passengers using CHT to pay an extra $5 on top of the required tunnel toll for return journeys of taxis. Mr CHAN Choi-hi said that he would object to any kind of increases in taxi charges vis-a-vis the toll increase of EHC.

8.Members noted that the Transport Advisory Committee (TAC) had recommended an increase in the return toll for taxi passengers using EHC and WHC from $10 to $15 whilst maintaining the return toll for CHT at $10. A member indicated his support for TAC's proposal but some other members expressed grave concern about the traffic impact of such a charging arrangement on CHT and asked whether TAC had considered the impact of the additional traffic that would be generated as a result of the lower return toll. Members also noted the taxi trade's view that a double-toll arrangement should be adopted for each of the three harbour crossings.

9.In response, AC/FP said that TAC was of the view that an extra $5 would only have a marginal impact on traffic management, taking into account CHT's relatively more central location among the three harbour crossings. Whilst such a charging arrangement might attract additional traffic to CHT, TAC was inclined to keep the changes to a minimum, pending possible redistribution of traffic among the three harbour crossings upon the opening of the new airport. The Commissioner for Transport (C for T) added that with the opening of WHC, traffic at and near CHT and EHC had improved although traffic queues were still observed. The Administration would continue to monitor the situation. In the longer term, it might be necessary to review the charging arrangement again in order to encourage a more even spread of taxi traffic among the three harbour crossings.

10.The Deputy Secretary for Transport (Transport Services) said that whilst there were different views on the charging arrangement, the Administration would carefully assess the implications of each and every option before putting forward the proposal to the Executive Council for approval.

11.A member pointed out that when $10 was adopted as the return toll for taxi passengers using WHC, consideration was given to the principle that the return toll should be at a level comparable to the lowest tunnel toll for using other harbour crossings. The Administration seemed to have violated this principle in recommending a return toll of $15 for all three cross-harbour tunnels in view of the EHC toll increase. In response, C for T said that the return toll for taxi passengers using WHC was pitched at $10 to enable taxi drivers using WHC to return to their operating base via two cross-harbour routes (i.e. CHT or EHC) without having to pay out of pocket, in the event that they failed to obtain a hire on the return journey across the harbour. With the toll increase of EHC on 1 January 1998, this charging arrangement would need to be revised in order to maintain the original principle of providing two return routes.

12.A member pointed out that in order to minimize confusion to the general public vis-a-vis the toll increases of the harbour crossings at different times, a standard taxi toll should be charged for each journey through any of the three harbour crossings. C for T explained that since the cross-harbour tunnels were operated by different operators and were subject to different franchise agreements granted at different times, it was inevitable that different pricing would be adopted. In fact, the Administration had tried to persuade the operator of WHC to lower the return toll for empty taxis when WHC was opened in April this year. She said that the Administration had no statutory authority to require the operator to charge less than the approved toll. The Chairman requested the Administration to relay members' comments to the operators for consideration in the light of the changing circumstances.

IV.Kowloon Motor Bus's fare increase application

(PLC Paper No. CB(1)333(02) - .Information paper provided by the Administration

PLC Paper No. CB(1)337 - .A submission from KMB)

13.The Managing Director, Kowloon Motor Bus Company (1933) Ltd. (MD/KMB) briefed members that KMB had applied for a fare increase of 9.2% on all routes to take effect on 1 December 1997. This was equivalent to a weighted average fare increase of 9.5%. He said that by December 1997, it would have been 20 months since KMB had last adjusted its fares. Apart from meeting the cost increases, mainly in salaries and wages, a fare increase was necessary in order for the company to further improve its services. He said that the capital expenditure incurred by the company during 1997 on ordering new buses alone amounted to over $1 billion which was two times the profit of the company in 1996. Presently, around 130 or one third of the routes operated by the company were loss-making.

14.Given the fact that a profit of around $260 million was reported for the six months ended 30 June 1997 which was around 10% higher than that for the same period in 1996, some members opined that KMB should not increase its fares. They also expressed serious concern about the discrepancy between KMB's estimated return and the actual outcome, in particular, where a profit of around $500 million was still reported after KMB's last fare increase proposal had been reduced from 7.8% to 2.7%. MD/KMB advised that the discrepancy between the company's estimated return and the actual outcome was attributable to two factors. First, there was an increase in revenue due to growth of ridership. Second, KMB was successful in cutting costs through various programmes to improve productivity and efficiency. He further said that the estimates provided in the context of KMB's 1996 application were based on the population forecast prepared by the Administration. It turned out that the patronage growth was stronger than expected due to an under-estimation of population growth. Notwithstanding the above, profit had been re-invested to fund improvement programmes to cope with the demand. As an example, the company would spend $900 million on the purchase of new buses in 1998 and would also incur costs in implementing a series of service improvement programmes. He undertook to provide further information on the service improvement plan of the company after the meeting.

15.The Assistant Commissioner for Transport/Bus Development also responded that in assessing KMB's last fare increase application in late 1995/ early 1996, the Administration had to rely on the planning data drawn up from the 1991 census. Following the bi-census conducted in 1996, the Administration was able to project the population growth more accurately in the current exercise. It was hoped that with these updated planning data, the discrepancy could be minimized.

16.Regarding measures to improve efficiency and productivity, MD/KMB said that the Company would continue to implement route rationalization programmes with a view to redeploying vehicles to more productive areas whilst maintaining quality service to meet the transport needs of commuters.

17.In response to a member's question on the yardstick for " a reasonable return " , MD/KMB advised that although the new franchise was not subject to any Profit Control Scheme, KMB considered that in order to have a proper balance between the interests of commuters and those of the investors, an annual " permitted return " equivalent to 16% of its average net fixed assets should be adopted in calculating the return on investment. As to the Government's stance, C for T said that in considering the fare increase application, the Administration would take into account the operating costs and revenue, performance of the bus company, inflation and public acceptability.

18.Some members opined that in view of the sound financial position of the company, the proposed increase was too high. They enquired whether the company had considered the impact of the fare increase on the travelling public. MD/KMB responded that the proposed fare increase was reasonable as there was already a 20-month gap since the last fare revision and the proposed increase was below the cumulative rate of inflation over the same period. Furthermore, the company also needed to meet its rising operating costs. For instance, pay increases of 7.7% and 6.9% (i.e. a cumulative increase of some 15%) had been granted to the staff in 1996 and 1997 respectively. He said that since the company was operating loss-making routes to meet the transport needs of the community, a growth in ridership would not necessarily lead to an increase in profit. The competition in the transport sector was keen and the risks associated with bus operation would be much higher than placing the capital in banks and hence, a reasonable rate of return on the investment was warranted.

19.Responding to a member's comment on the high breakdown rate of buses, MD/KMB advised that the maintenance of buses was under strict control. Up to now, seven of KMB's eight permanent depots had been awarded ISO 9002 certificates for bus maintenance. The number of bus accidents was low in relation to the number of vehicle-kms operated. Furthermore, a series of improvement plans were being implemented to improve safety and reduce accidents.

20.In response to a member's question regarding the development plan for overnight bus service, the Marketing, Planning & Development Manager said that the service had been extended to cover major new towns such as Tuen Mun, Tseung Kwan O, Ma O Shan and Tsuen Wan. An enquiry service (Bus Arrival Timeline) had been installed to allow customers to find out the arrival times of overnight buses.

21.A member suggested that the Administration should provide information in a standardized format in respect of fare increases applications from bus companies. At members' request, the Administration undertook to provide additional operational and financial information in respect of KMB, similar to that submitted by CMB. KMB.22.As to further disclosure of KMB's operational and financial details, C for T said that as KMB was a listed company, the Administration could not release financial information, ridership forecast and other planning parameters which were commercially sensitive. MD/KMB added that members could find the results of the company in its annual report and undertook to provide members with copies of the report.

Admin

(Post meeting note : KMB's Annual Report 1996 and Interim Report 1997 were circulated to members vide PLC Paper No. CB(1) 369)

V.China Motor Bus's fare increase application

(PLC Paper No. CB(1)333(03) - .Information paper provided by the Administration

PLC Paper No. CB(1)341(01) - .A submission from CMB)

23.The Planning Manager, CMB (PM/CMB) briefed members that CMB had applied for a fare increase in order for the company to offset the rising costs caused by general inflation; and to enable the company to make investments in planned service improvements. He said that CMB was committed to providing a high quality bus service. Despite the deteriorating financial performance of the company, significant efforts had been made to improve its operating performance and services to the travelling public.

24.The Chairman enquired about the significant reduction in CMB's operating profit in 1995/96, with the rate of return on average net fixed assets being 2%, as compared to 13.1% and 14.1% in 1993/94 and 1994/95 respectively. PM/CMB responded that the profit reduction was due to the re-allocation of 14 routes to Citybus and that the fact that the fare increase application for the 1995/1996 financial year could not be put into effect until March 1996. As to why similar reduction was not experienced in 1993 when 26 routes were transferred to Citybus, he explained that the reduction in 1993 was offset by the increase in ridership in cross-harbour tunnel routes and other local routes due to new population intake. The effect of such development had already stabilized from 1995 onwards.

25.Noting that there were signs of improvement on CMB's performance in terms of bus availability rate and lost trips as set out in the information paper prepared by the Administration, the Chairman enquired why there were still substantial complaints about the erratic bus service of CMB. C for T responded that irregularity of service was the most common complaints even for the other bus companies. The cause could be traffic congestion which was beyond the control of the bus companies. PM/CMB added that the average number of complaints about CMB's services handled by the Transport Complaints Unit actually decreased from 57 cases per month in 1996 to 51 cases per month in the first half of 1997.

26.As to why there was an increase in the number of complaints against CMB in the second quarter of 1997 over the first quarter, the Assistant Commissioner for Transport/Bus Development advised that traditionally due to the long holidays in the Chinese New Year, complaints received during the first quarters were usually less than the other quarters. The higher complaint rate in the second quarter was also due to the worsening traffic condition as a result of the construction of the airport railway project in Central and the adverse weather in May and June. The opening of the Western Harbour Crossing had also caused some operational problems at the initial stage.

27.On the higher accident rate of CMB as compared to KMB in terms of accidents per million vehicle-km, PM/CMB said that the chance of having accidents in urban areas was much higher than in suburban areas and highways. Given that CMB buses mostly ran in the urban areas, a higher rate of accident was inevitable. In terms of mechanical reliability, CMB compared favourably with other bus companies. At members' request, he undertook to examine whether ISO certification for bus maintenance could be pursued by the company.

28.Some members were of the view that despite the improvements made, CMB's services were still far from satisfactory. As an example, the average age of CMB's fleet was 13.4 years and some of them had already reached its full life span. They therefore opined that the company should not be rewarded with the approval for the highest rate of fare increase amongst the three bus companies under such circumstances. They also questioned whether the company had considered the public acceptability in formulating the proposed rate of fare increase.

29.PM/CMB responded that the present proposal had already taken into account the interests of commuters and those of the investors. Given that CMB was only granted a shorter franchise period of two to three years, it would be difficult to put in place substantial investments on new buses. He said that bus operation was a labour intensive industry with about 60% of CMB's operating cost being accounted for by salaries and wages. If the fare increase were to be effective in December 1997, there would have been a combined wage increase of around 15% since the last fare rise. As such, it was likely that the return from bus operation for the 1997/98 financial year would at best be marginal. Notwithstanding the above, the company had endeavoured to improve its services within the present financial constraint. Currently, about 23% of the company's operational bus fleet were air-conditioned vehicles and the company's target was to increase the proportion of air-conditioned buses in the fleet to 50%.

30.As to whether CMB could reduce the fare increase of local urban routes from 12% - 13% to 8.8% as for other urban cross-harbour routes, PM/CMB advised that the proposed rate of increase included rounding up of the resultant fares to the nearest 10 cents, which was the smallest denomination in the market. In fact, due to the low base fares of local urban routes, the actual increases only amounted to 30 to 40 cents.

31.Noting that around 60% of CMB's operating costs was labour related as compared to around 50% of Citybus's, a member enquired about how the company could enhance staff productivity to improve efficiency. PM/CMB advised that in view of the higher average age of CMB's fleet, depreciation only formed a small proportion of the total operating costs. Under such circumstances, CMB's finances would be more sensitive to increases in labour cost as lesser costs were associated with the infrastructure. Presently, services would be contracted out, as appropriate, to improve efficiency. They would continue to look for measures to cut costs.

32.Regarding the poor attitude of drivers, PM/CMB advised that the company was very concerned about the attitude of staff towards passengers. They would look into complaints lodged by the general public and take disciplinary action against the staff concerned, if the complaint was substantiated. They also maintained regular dialogue with the staff side with a view to improving their performance. The Chairman opined that it was high time for CMB to review whether suitable incentive schemes should be introduced to improve the performance of staff as measures taken by the company in the past did not seem effective.

33.A member opined that the management of the company would need to be revamped in order to improve the company's performance. PM/CMB responded that the company was considering a restructuring proposal and presently, negotiation with the Administration was underway. Upon implementation, it would enable the company to provide bus operation in a more efficient manner.

34.Regarding the impact on CMB if the requested rate of increase was not acceded to, PM/CMB said that this would, no doubt, affect the service improvement plans of the company but the exact impact would need to be ascertained in the light of a concrete decision.

VI.Citybus's fare increase applicationm

(PLC Paper No. CB(1)333(04) - .Information paper provided by the Administration

.PLC Paper No. CB(1) 341(02) - .A submission from Citybus)

35.The General Manager, Citybus Limited (GM/Citybus) informed members that Citybus Limited (Citybus) had applied for a weighted average fare increase of 8.7% to take effect on 1 November 1997. He said that by November 1997, it would have been 21 months since Citybus had last adjusted its fares. The proposed fare increase was slightly lower than the cumulative inflation over the last 21 months which was around 10.7%. Apart from meeting the cost increases, mainly in wages, a fare increase was necessary for the company to fund its expansion in order to tap the demand for bus services on Hong Kong Island. Moreover, Citybus had planned to invest heavily to improve the quality and adequacy of its service.

36.Some members opined that Citybus should not increase its fares as ridership was on the rise and hence, additional profit could be generated. The Managing Director/Citybus (MD/Citybus) said that the profit made was in fact very modest and had to be re-invested into the company. The increase in ridership resulting from the additional routes would also mean more investment for the provision of the required level of service.

37.In the light of the rising number of complaints about bus breakdowns, a member enquired about the maintenance programme of the company and whether the Administration had exercised proper control to ensure safety. In reply, MD/Citybus said that in view of the topography of Hong Kong Island coupled with the wet weather experienced in the last few months, a higher accident rate was resulted. Nevertheless, the Company had intensified the training of drivers. To this end, refresher training was arranged to enhance their driving skills. As to the proficiency of its engineers, he assured members that Citybus had sufficient manpower with the necessary skills and techniques to ensure that buses were properly maintained.

38.On the recent high vehicle breakdown rate, MD/Citybus further explained that Citybus was the pioneer in using new engines which complied with a new standard (Euro 2) for minimizing environmental nuisance. However, some adaptation problems were encountered at the initial stage due to the climatic conditions in Hong Kong. They had referred the matters to the manufacturers and the problems were all resolved. In future, they would improve the testing procedures of prototype engines before adoption. To further enhance the maintenance service, the Company was planning for two major engineering support facilities to meet the growing need of the company.

39.Responding to members' further questions on whether the rising breakdown rate was due to staff shortage as a result of the taking over of additional routes from CMB, MD/Citybus advised that the company did not have any shortage of manpower. In fact, to tie in with the operation of the new engineering support facilities in 1998, additional manpower had already been deployed. Relevant training would also be arranged to ensure quality. Presently, the ratio of engineering staff to buses was 0.6. When there was an increase in fleet size in future, the company would correspondingly increase the manning level to meet the rising needs. The Assistant Commissioner for Transport/Bus Development added that Citybus's standard of maintenance was satisfactory. The Government would carry out annual inspections as well as random checks to ensure that vehicles were fit for operation.

40.Regarding bus fire accidents, MD/Citybus advised that the recent bus fire incident was only an isolated event. The company had made the necessary remedy by replacing the problem components.

VII.Any other business

41.There being no other business, the meeting ended at 10:45 am.

Provisional Legislative Council Secretariat
25 November 1997