Panel on Transport (Minutes) 23 Jul 97

Provisional Legislative Council

Revised

PLC Paper No. CB(1) 207
(These minutes have been seen
by the Administration)

Ref : CB1/PL/TP/1

Panel on Transport

Minutes of meeting held on Wednesday, 23 July 1997, at 11:15 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 Mrs Selina CHOW, JP
Hon Henry WU
Hon YUEN Mo
Hon CHAN Choi-hi
Hon CHAN Wing-chan
Hon CHAN Kam-lam
Hon CHENG Kai-nam
Hon LAU Kong-wah
Dr Hon TANG Siu-tong, JP
Dr Hon LAW Cheung-kwok

Member attending :

Hon TAM Yiu-chung, JP

Members absent :

Hon Andrew WONG Wang-fat, JP
Hon CHOY Kan-pui, JP
Hon NGAN Kam-chuen

Public officers attending :

Transport Bureau

Mr Gordon SIU, JP,: Secretary for Transport
Mr Isaac Y N CHOW, JP,: Deputy Secretary for Transport
Mr Davey CHUNG,: Principal Assistant Secretary for Transport

For Item I only

Mr Paul LEUNG, JP,: Deputy Secretary for Transport

Attendance by invitation :

For Item I

Kowloon-Canton Railway Corporation: Mr YEUNG Kai-yin, CBE, JP, Chairman; Mr Samuel LAI, Finance Director; Mr Jonathan YU, JP, Director, Light Rail; Mr K K LEE, Director, East Rail; Mrs Irene YAU, General Manager, Corporate Affairs

For Item II

Mass Transit Railway Corporation

Mr Jack C K SO, OBE, JP, Chairman

Mr Clement KWOK, Finance Director

Mr Rob Noble, Marketing & Planning Director

Mr Eric TANG, Corporate Controller

Mr Eddie SO, Transport Planning Manager

Mr Brian Chambers, General Manager
(Contactless Smart Card)

Mrs Miranda LEUNG, Corporate Relations Manager

Clerk in attendance :

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

Staff in attendance :

Mr Matthew LOO,: Senior Assistant Secretary (1)4 (Atg)

The Chairman advised that the materials used by the two railway corporations in their earlier presentations to the Transport Advisory Committee (TAC) on the subject of 1997 railway fare revisions were tabled for members ' reference. The Panel also requested timely provision of information papers from the Administration and avoidance of papers being tabled at meetings as far as possible in future.

I. Briefing by Kowloon-Canton Railway Corporation on 1997 fare revision
(Letter dated 14 July 1997 from KCRC issued to Members)

2.At the Chairman ' s invitation, Mr YEUNG Kai-yin advised that the Kowloon-Canton Railway Corporation (KCRC) had earned total profits of $11.2 billion since it became a public corporation 14 years ago. All these profits had been re-invested in capital improvements. Over the past seven years, KCRC domestic fares had increased only by a total of 42%, which was 24 percentage points below the growth of the Consumer Price Index (A) (CPI(A)) of 66% and well below the Median Wages Index of the lower income population of 94%. In the next three years, KCRC would spend $5.6 billion, to be generated largely from fare income and property development, on committed and new capital improvements. As a result of productivity improvement and prudent cost management, a below overall inflation fare increase of 6.5% for KCRC was possible in 1997 to secure sufficient funds for these capital investments. Mr YEUNG stressed that consequential upon consultation with the TAC and relevant District Boards, the fare for Kowloon-Hung Hom/Sha Tin section of the East Rail would be frozen at $5.5 and that for Kowloon-Fanling/Sheung Shui section would only increase by $0.5 to $9; this proposal was subject to approval by the KCRC Managing Board. Mr K K LEE added that the Octopus (a contactless smart card) would be introduced to replace the Common Stored Value Ticket (CSVT) on 1 September 1997 to tie in with the fare increase. The fare per trip on East Rail using the Octopus would be 6% lower than the fare per equivalent trip using CSVT to compensate for the loss of the last-ride bonus and the upfront discount currently offered to CSVT buyers.

3.Mr Jonathan YU said that Light Rail (LR) had suffered $9 billion losses since its operation in 1988. Despite fare increases in line with inflation, the operating deficits including depreciation would still accumulate to $14 billion in the next ten years. LR had also sustained about $190 million operational losses annually with the existing zonal fare system. The proposed 7.6% fare increase had incorporated the effect of the LR fare structure reform. The introduction of the Octopus in September 1997 would enable LR fares to be set in direct proportion to the number of trips taken and the distance travelled. Frequent LR users would continue to enjoy concessions offered in the Personalized Octopus which would reward users with bonus once they consumed a pre-determined travel value within a specified period.

4. Mr YEUNG advised that a passenger would have to pay a $50 deposit for buying an Octopus card. About $30 of the deposit would be the cost of the card, and the remaining value would enable a passenger to complete a journey even if the value of the card was below the fare for the trip. The Octopus card could be issued in a personalized form incorporating the user ' s name and other personal data. The charge for processing such personalized data was $20 in addition to the $50 deposit. Mr YEUNG said that he would propose to the KCRC Managing Board to shoulder half of the $50 deposit and waive the processing cost of $20 for the Personalized Octopus for LR monthly/seasonal ticket holders if they subscribed to the Personalized Octopus within a transitional period, the duration of which had yet to be decided. In conclusion, Mr YEUNG stressed that KCRC had had regard to the responsibility of the Corporation in serving the community when drawing up its fare revision proposals.

5.Members urged KCRC to lower the deposit to $30, and to waive the additional processing cost of $20 for the Personalized Octopus. In response, Mr YEUNG advised that KCRC was only one of the shareholders of the company operating the Octopus ticketing system, and he would convey members ' views to the company for consideration. Mr YU also explained that unlike the ordinary card, the Personalized Octopus card which contained personal data of the card holder was not recyclable. Personalized Octopus card holders could transfer the remaining values to new smart cards if the old cards were lost. As such, an additional processing cost of $20 was required. He assured members that the company would have proper mechanisms to protect the privacy of such personalized data.

KCRC

6Hon Edward HO declared interest as member of the Managing Board of the Mass Transit Railway Corporation (MTRC). In response to his enquiry, Mr YEUNG clarified that KCRC had proposed transitional arrangements to encourage LR multi-ride ticket holders to use the Personalized Octopus. Such arrangements would not be extended to users of other means of public transport.

Fare structure

7.In response to members ' suggestion, Mr YU said that it was inadvisable to retain or re-introduce monthly/seasonal tickets for LR as these tickets had the drawbacks that ticket holders paid the same fares irrespective of the trips made and distance travelled. Mr YEUNG also emphasized the importance of bringing LR fare structure in line with the distance-based fare structures of other public transport in Hong Kong. This was particularly important in view of the connection of LR with the Western Corridor Railway in the near future. Meanwhile, frequent users would continue to enjoy concessions, distributed equitably, under the Octopus.

8.Hon CHEUNG Hon-chung said that the Democratic Alliance for the Betterment of Hong Kong did not support the fare increase. He said that both railway corporations had only provided superficial information on their fare revisions and he was dissatisfied with the tabling of papers at the meeting. In addition, he doubted if LR would gain any profits from its fare re-structuring. In response, Mr YU affirmed that the introduction of the Octopus was revenue-neutral and the estimated increase in revenue of $11 million was solely the result of the increase in fares. It was estimated that 20% of LR passengers would benefit from the Octopus and pay lower fares; around 30% of passengers would have a fare increase of less than 6%. Some 20% would have a fare increase of 6% to 9%, which was similar to the projected inflation rate, whilst the rest would face a fare increase of more than 9% following the fare revision.

9.A member noted that the CSVT fares for a few East Rail journeys were equivalent to the corresponding single-ride fares in the proposed fare revision. He enquired if concessions for CSVT fares, as compared with single-ride fares, had been cancelled. In response, Messrs YEUNG and LEE clarified that CSVT buyers would only enjoy the last-ride bonus and the upfront discount. They explained that the basic unit increase in fare for single-ride tickets was $0.5. It was a technical restriction imposed by single-ride ticketing machines and had resulted in discrepancies between CSVT and single-ride fares in the past. They affirmed that it was not a stipulated policy for CSVT fares to be set lower than single-ride fares. Mr YEUNG undertook to provide members with further information to clarify this point.

KCRC

(Post-meeting note: Supplementary information on CSVT and single-ride fares had been circulated directly to members by KCRC on 24 July 1997.)

Fare level

10. Members were concerned about the big discrepancy between fare levels of cross-border and local domestic passenger line of the East Rail. Mr YEUNG undertook to review the position but advised that the rate of return of the local section of East Rail was only 0.9%. This would increase to above 10% if the cross-border section was taken into account. Domestic passengers of East Rail were paying less when compared with other means of public transport such as the Airport Railway for the same distance travelled. At members ' request, Mr YEUNG undertook to report progress to the Panel in six months.

KCRC

11. On the proposal to freeze the fare increase, Mr YEUNG responded that each year KCRC had to spend $1 billion on service improvements of the East Rail, while around $200 million was required to cover the operating deficits of LR; capital improvements would be hampered in the event of delay in fare increase. He emphasized that all capital investments by KCRC had to be approved by the KCRC Managing Board. It was also a statutory requirement for KCRC to operate in accordance with prudent commercial principles. Moreover, plans on future developments on a three-yearly basis would have to be prepared for approval by the KCRC Managing Board. The Secretary for Transport (S for T) added that the fare increase was essential for KCRC to secure adequate funds to implement such improvement projects as the installation of new signalling systems and additional trains to maximize the East Rail system utility. In response to a member, Mr YEUNG affirmed that the $3 billion profits from property development in 1996 had either been used to repay the outstanding loan or for KCRC system improvements. He undertook to provide members with supplementary information regarding the financial position of KCRC in 1995 and 1996. He also took note of a member ' s suggestion to lower the average fare increase to 5.5% as MTRC.

KCRC

(Post-meeting note: Supplementary information on the financial position of KCRC had been circulated directly to members by KCRC on 24 July 1997.)

Inflation rate

12.A member noted that the inflation rate of 6.07% announced recently by the Administration was much lower than the 8.3% suggested by KCRC. Mr YEUNG clarified that the inflation rate quoted by KCRC was based on the forecast made by the Government Economist, and represented the projected accumulated inflation over a 16-month period from May 1996 to September 1997. The figure of 6.07% quoted by the member was based on a different basis of calculation. S for T undertook to clarify this point and provide members with an updated projection for reference.

Admin

(Post-meeting note: The Administration ' s response had been circulated to members vide PLC Paper No. CB(1) 104 on 31 July 1997.)

II .Briefing by Mass Transit Railway Corporation on 1997 fare revision
(Letter dated 15 July 1997 from MTRC issued to Members)

13. At the Chairman ' s invitation, Messrs Jack C K SO and Eric TANG advised that MTRC had the duty to provide a reliable and efficient service to the community. While the prime considerations in fare revisions were passengers ' affordability and no increase in real terms, it was also necessary for MTRC to secure sufficient funds to up keep the railway system and implement new projects such as the Airport Railway and the Tseung Kwan O Extension. MTRC ' s profit in 1996 was $1.5 billion and an amount of $2 billion had been invested in capital investment works for the existing railway. Outstanding loans including new projects were forecast to accumulate to about $55 billion in the next five years. As a result of cost-effective management and increased productivity, MTRC was able to keep fare increases below inflation: the annual average increase of 7.8% in the past 18 years was lower than the annual average increase of 8.4% in CPI(A) in the same period. Moreover, in a benchmarking exercise conducted in 1995 among eight major urban railway systems in the world, MTRC was rated at the top in service quality as well as performance efficiency. The proposed fare increase in 1997 would result in an average fare increase of 5.5% and would be substantially lower than the 16-month projected accumulated inflation of 8.3%. Mr Jack SO also pointed out that prudent and consistent financial policies were essential for good credit ratings and hence help reduce interest expenses and fare increases. Following the introduction of the Octopus, MTRC would retain the 30% staggered hour discount for journeys using adult CSVT and Octopus before 8:00 a.m. and between 9:00 a.m. and 9:30 a.m. from Monday to Friday except public holidays. The Octopus fares would be 10% less than the new CSVT fares, and the reduction would be equivalent to the average last-ride bonus and upfront discount for the CSVT.

Financial position

14. Referring to the revenue forecast of MTRC in the next few years, Mr Clement KWOK said that the estimated operating profits in 1997 would be similar to those in 1996. MTRC was working on the forecast for 1998 and a significant increase in operating profits was not expected in the near future. He also affirmed that there would not be any cross-subsidy between MTRC ' s existing operating systems and new extension lines. Mr Jack SO undertook to provide members with an updated financial forecast for 1998 for reference.

MTRC

15.Referring to the capital expenditure on station management system, Mr Jack SO advised that it was used to improve communication between stations and the central control room and this would have significant bearing on the safety and reliability of the system. As regards the expenditure on personal communications service, Mr Rob Noble explained that this was in connection with the introduction by MTRC of advanced mobile phone technology in MTRC stations in conjunction with a number of telephone companies. The cost of installing related equipment and facilities would be recovered from telephone companies through future rental incomes. Mr Jack SO also assured members that MTRC capital expenditures were closely monitored by the MTRC Managing Board.

The Octopus and fare structure

16.A member commented that the proposed average fare increase of 5.5% was only an artificial figure as he noted that the rates of increase for longer trips were above inflation. Some members also enquired if Octopus users would gain fewer benefits than CSVT. In response, Mr Eddie SO clarified that although some sections would have higher level of increases, the average increase was 5.5%. He added that there would not be any fare increase for adult single journey tickets in the cheapest three zones and for all concessionary single journey fares although the same might not be possible in the next round of fare revision. In response to a member, he clarified that it was not possible to reduce the percentage increase for a certain sector without correspondingly increasing the percentage for another; otherwise, the overall increase of 5.5% would not be achieved. Mr Jack SO supplemented that a recent survey conducted by MTRC suggested that passengers were more ready to accept fare increases for long journeys than short trips. Mr Jack SO said that the conversion to Octopus would be revenue-neutral as the fare discounts on Octopus would sufficiently compensate for all the CSVT concessions including the last-ride bonus. MTRC was actively considering introducing some marketing activities to promote the Octopus.

17.Mr Noble added that CSVT passengers currently enjoyed an average concession of 10% for the last-ride bonus and upfront discount; this had been replaced by the 10% discount given in the Octopus. He emphasized that MTRC had no intention to force passengers to use Octopus by reducing concessions to CSVT users. In fact, Octopus users would basically be paying the same total amounts as for CSVT after allowing for all CSVT discounts. When compared with CSVT holders, some Octopus ticket holders might be better off while others maximizing their last-ride bonus would be slightly worse off. Octopus would offer a fairer system of 10% discount for all. Mr Jack SO said that MTRC faced the same technical problem with single-ride ticketing machines as KCRC in that the basic unit for single-ride fare revision was restricted to $0.5; this had resulted in the discrepancies between single-ride and CSVT fares as MTRC did not increase the single-ride fares in the lowest zones. He also pointed out that the only reason for the delay of fare increase in 1997 was to tie in with the introduction of the Octopus so as to minimize inconvenience to passengers.

18. Similar to KCRC, Mr Jack SO advised that MTRC was only one of the shareholders of the company operating the Octopus ticketing system. Nevertheless, he would forward members ' suggestion for lowering or waiving the deposit of the Octopus to the company for consideration. He added that the company was liaising with banks on providing autopay arrangements for the Personalized Octopus as an option. Once autopay could be arranged from bank accounts of the Personalized Octopus holders to smart card, the company might lower the deposit by $20.

Airport Railway

19. In response to a member on whether the Airport Railway could tie in with the opening of New Airport, Mr Jack SO advised that the Administration had not yet confirmed the exact opening date and it was inadvisable for MTRC to inject additional funds to speed up construction at that stage. Nevertheless, MTRC had maintained close liaison with the Airport Authority in this respect.

20. A member noted that Mr YEUNG Kai-yin would make new proposals on fare revisions to the KCRC Managing Board for approval. He considered it worthwhile for another meeting in early August to examine further the two Corporations ' fare revision proposals before their submission to the Executive Council. After deliberations, the Chairman advised that the holding of another special meeting would be subject to the request of members upon receipt of written responses from the Administration and KCRC.

III.Any other business

21.There being no other business, the meeting ended at 1:35 pm.

Provisional Legislative Council Secretariat
8 September 1997