Ms LEUNG Siu-kum,

Chief Assistant Secretary (1)2

Mr Andy LAU,

Senior Assistant Secretary (1)6

I Confirmation of minutes and matters arising
(LC Paper No. CB(1) 1748/98-99 - Minutes of meeting on 25 June 1999
LC Paper No. CB(1) 1749/98-99 - List of Follow-up Actions
LC Paper No. CB(1) 1750/98-99 - List of Outstanding Items for Discussion)

Members agreed to defer consideration of the minutes of meeting held on 25 June 1999 by circulation.

(Post meeting note: The minutes were subsequently confirmed vide LC Paper No. 1769/98-99).

2. Members noted the List of Follow-up Actions and raised no question on it.

II Information papers issued since last meeting

3. Members noted the information papers issued since the last meeting. Noting the concerns of the Southern Provisional District Board members about the provision of a multi-storey public car park at Stanley Market, members agreed to include the subject matter in the list of outstanding items for discussion.

III Privatization of MTR Corporation
(LC Paper No. CB(1) 1751/98-99(01) - Information paper provided by the Administration)

4. The Chairman informed the meeting that privatization of the Mass Transit Railway Corporation (MTRC) was last discussed at the meeting held on 25 June 1999. At that meeting, members requested the Administration to provide information on the approaches adopted by overseas governments in the privatization of railways, covering, amongst other things, the regulatory regime and fare setting mechanism. An information paper was subsequently provided by the Administration vide LC Paper No. CB(1)1751/98-99(01) for members' reference.

5. At the invitation of the Chairman, the Secretary for Transport (Acting) (S for T (Ag.)) briefed members on the legislative timetable of the proposal and said that the Administration would introduce the Bill to the Council at the first available time slot after the summer recess. As to the relevance of the approaches adopted by overseas governments in the privatization of MTRC, he said that in drawing lessons from the overseas experience, it was important for the Government to pay due regard to the unique operational characteristics of MTRC, which was amongst the most efficiently and profitably run railway systems in the world, and to map out a privatization plan that would best suit Hong Kong's circumstances.

6. The Senior Consultant of Mercer Management Consulting (SC/MMC) highlighted the uniqueness of MTR system in Hong Kong as compared to other overseas railway systems. In terms of profitability, MTRC had been a most profitably run railway system in the world and had all along operated under prudent commercial principles. Unlike other cities where the Government needed to put up a subsidy to cover a substantial portion of the operating expenses of the railway systems, MTRC had never imposed any financial burden on the Government. SC/MMC advised that there were different considerations for privatization in other countries. In the cases of Argentina, Japan and New Zealand, one of the primary reasons was to reduce financial drains on governments. For the other three cases in the United Kingdom, Canada and the United States, the common objective was to improve the productivity and efficiency.

7. SC/MMC further advised that privatization was usually accompanied by a lessening of the related economic regulation. For instance, all transport industry-specific regulations in New Zealand were eliminated, and regulatory requirements on both the restructured companies and the private railroads resulting from privatization were reduced in Japan. In terms of regulatory mechanism, SC/MMC advised that open market competition was an effective regulatory mechanism. He said that the cost of regulation was one of the prime reasons leading to the poor financial performance of the rail freight in the United States in the 1970s. On the passenger side, he referred members to the case of Japan, highlighting that fare increases had become far less frequent after privatization. He elaborated that prior to privatization, Japanese National Railways adjusted fares on an annual basis. But in the five years following privatization, the privatized companies had not increased their fares except on one occasion where the increase was inevitable due to the introduction of a new consumption tax.

8. Mr Edward HO commented that the paper did not contain sufficient information on the business of the concerned railway companies before and after privatization in respect of the following areas:

1. financial position of the company, including the change in profit and loss, and the change in the amount of government subsidy;

2. service standard, including the change in railway safety and efficiency; and

3. regulatory mechanism, including the change in respect of the monitoring roles played by the Government and the legislature in determining fares and service standards.

Fare determination mechanism

10. Noting that the consultant was of the view that competition was the most effective form of regulatory mechanism and having regard to the fact that in some cases, fares were determined through commercially negotiated contracts between the privatized companies and the local authorities, Mrs Selina CHOW enquired about the role of the legislature and how consumers' views could be reflected in the negotiation process. SC/MMC advised that in most cases, fare determination was related to the issue of subsidy as most of the railway systems, if not all, were running at a loss. He said that the legislature did not have a defined role in the process. In the case of the United Kingdom, there was an independent regulatory authority separate from the Ministry of Transport. One of the key functions of the Regulator was to act as a guardian of users' interests and to receive complaints from them. Regarding the fare determination mechanism, the Franchising Director had the power to include in a franchise agreement a provision to ensure that the level of fares was reasonable. Fare increases after privatization were capped at inflation for the first three years, and inflation less one percent for the next four years.

13. Mr LEE Cheuk-yan stated that in New Zealand, urban passenger services were provided through commercially negotiated contracts to local authorities. These contracts provided for payment to the rail operators for the railway services to cover the cost of providing the rail services in excess of income generated from fares, plus a reasonable profit margin. As such, the authority to determine the level of fares seemed to be rested with the Administration. SC/MMC clarified that no transport industry-specific legislation for freight rates or other aspects of a freight operator's business applied in New Zealand and the privatized long distance passenger services were also not regulated. The only Government's involvement was in the community railway operation between Auckland and Wellington where the operation were governed through contract terms negotiated between the municipalities and the private operators.

14. Referring to the Canadian case, Mr HO Chun-yan enquired whether a similar environment for competition existed in Hong Kong. SC/MMC explained that the Canadian Government had the right to introduce competition through mandated access and/or inter-switching arrangements at locations where rates were found to be artificially high due to lack of competition. In the absence of a parallel railway system in Hong Kong, Mr HO Chun-yan enquired whether it was a common practice in other countries to introduce some sort of mechanism to regulate the level of fares and standard of services. SC/MMC advised that the Hong Kong's case was rather unique and it was difficult to find a suitable case for direct comparison. As to the regulatory mechanism, he remarked that the cost of regulation had always been high as the focus of the management had been put on regulation rather than other commercial market issues.

15. In response to the Chairman's enquiry about competition, SC/MMC advised that competition was not simply confined to parallel mode of transport but was extended to cover other modes of transport.

16. Mr LEE Cheuk-yan also queried the justifications for the proposed privatization of MTRC. Unlike other overseas systems, MTRC, being a most efficiently and profitably run railway system in the world, did not have any financial pressure for privatization. Further, parallel competition between different rails did not exist in Hong Kong. In terms of competition, it was only applicable amongst different modes of transport such as buses, taxis and public light buses etc. He asked if competition had been created as a result of the splitting up of the rail upon privatization in other countries.

17. SC/MMC replied that in some of the examples such as New Zealand and Canada, there was no change in the structure as well as the size and role of the subsequent organizations. In Argentina, passenger and freight services were divided into different functional lines but the reason for the split was not to introduce competition. Rather, it was intended to establish different functional management units. In Japan, the former railway company run by the State was considered too big and too complex to be managed as a single entity, and hence, it was divided into different regional units. The only applicable case was found in the United Kingdom where the British Rail was split into more than 100 companies to promote competition. However, it was questionable whether such a structure had a better performance than a single one.

Staff

18. Noting that one of the reasons for privatization in other overseas cases was to reduce financial drains on Government, Mr CHAN Wing-chan enquired whether the saving was achieved by means of cutting staff. SC/MMC replied that staff cuts were not solely responsible for the savings and that one of the benefits of privatization was to introduce private sector productivity and efficiency through improved service/market responsiveness which, in turn, would enable the companies concerned to achieve saving. Mr CHAN Wing-chan requested the Administration to avoid cutting staff in the course of the privatization exercise.

Foreign investment and financial arrangement

19. Regarding foreign investment after privatization, SC/MMC advised that in most of the cited cases, privatization of the railway systems came with different degree of foreign investment.

20. Referring to the case in the United States, Mr CHAN Kam-lam remarked that the franchise was only for a term of three years, with two optional one-year extensions by the public transportation authority. He enquired whether the franchisees would be willing to put up investment within such a short span of time even if they were allowed to determine fares on their own. SC/MMC agreed that there was a link between the amount of investment and the length of the franchise period. However, in the case of the United States, the company concerned was simply an operator and would not be responsible for any substantial capital investment other than those related to the routine maintenance of equipment. In the case of the United Kingdom, some of the franchise periods had been extended from seven years to 15 years to encourage new investments by railway companies.

21. As to whether investors would consider the privatization of MTRC attractive, S for T (Ag.) advised that the Administration would examine the issue taking into account the future monitoring mechanism and the investment environment at large.

23. In response to the Chairman, S for T (Ag.) clarified that the Operating Agreement signed between the Government and the MTR Corporation Limited (MTRCL) would eventually be an open document. The Administration undertook to put forward a summary of contents of the Operating Agreement for members' consideration.

Conclusion

24. In view of the nature and importance of the subject matter, the Chairman suggested and members agreed that a further meeting should be scheduled for September to receive briefing by the Administration on the legislative proposal before it was formally introduced to the Council.

(Post meeting note : With the concurrence of both Chairmen, a joint meeting of the Panel on Transport and Panel on Financial Affairs to discuss the legislative proposal of the privatization of MTRC was scheduled for 4 October 1999 at 10:45 am).

IV Planning and design of roads and highways

25. Members noted the information papers provided by the Administration. In view of time constraint, they agreed to defer consideration of the item.

V Transport network in Lantau
(LC Paper No. CB(1) 1751/98-99(03) - Information paper provided by the Administration)

26. The Chairman drew members' attention to a joint submission from seven local bodies on Lantau, urging the Administration to speed up the provision of a new North-South Link Road between Tai Ho Wan and Mui Wo (the project).

(Post meeting note : The joint submission was circulated to members after the meeting vide LC Paper No. CB(1) 1770/98-99(03)).

28. Members, in general, expressed concern about the environmental problems associated with the project. They pointed out that there was a need to strike a proper balance between the need to ensure a timely provision of transport infrastructure to meet the transport needs of residents on Lantau on one hand and to preserve the last natural scenery of Hong Kong on the other.

29. In reply, PM/MW(Ag.) advised that the Administration had evaluated a total of 17 alignment options by a weighting system taking into account all relevant criteria, including engineering, environmental, land uses and cost/programme. He further advised that a tunnel option might not always be better than a road option. In terms of energy consumption, a tunnel option would necessitate the provision of lighting and ventilation systems within the tunnel. Further, emissions from vehicles would be concentrated at both ends of the tunnel. Regarding the recommended alignment option, he said that it would generally be about 120 metres to 200 metres away from the Tai Ho Stream and its estuary, which had recently been designated as a Site of Special Scientific Interest (SSSI). Of all the alignment options, the recommended alignment was the farthest from the SSSI. Mitigation measures would be provided to protect the SSSI and all other streams during the construction stage of this project. The Administration would also implement large scale woodland planting of about 15 hectares of native trees in areas adjacent to the proposed road link to compensate for the habitat loss and to mitigate the adverse visual impacts of the elevated structures.

30. The Chairman advised that as the subject matter was only first discussed at the Panel, it would be helpful if members could sound out their major concerns and requested the Administration to provide additional information to facilitate subsequent discussion. Members agreed that the item should be put on the list of outstanding items for discussion. Meanwhile, the Administration was requested to provide the following information:

1. the evaluation of the 17 alignment options together with the pros and cons of each option, the assessment criteria and the weightings accorded to each individual factors such as costs, environmental implication etc.;

2. the estimated capital cost as well as the future maintenance cost of the recommended option as compared with those of other options;

3. the detailed work schedule of the proposed project and the possibility of fast-tracking the project;

4. the concerns raised by the public, the Advisory Council on the Environment and its Environmental Impact Assessment Subcommittee as well as the Country and Marine Parks Board about the recommended option and how these concerns would be addressed;

5. the recommended measures to protect the Tai Ho Stream and the SSSI as well as the government department(s) which was/were responsible for the environmental monitoring work after the completion of the proposed project; and

6. the overall planning for the development of Lantau and the information on the necessary transport network to meet the development needs.

31. The Chairman drew members' attention to a submission from Hongkong and Yaumati Ferry Co. Ltd (HYF) and a letter from Mr LEE Wing-tat enclosing the findings of a recent survey on HYF ferry service.

(Post meeting note : The above papers were subsequently circulated to members vide LC Paper No. CB(1) 1770/98-99(01) and (02)).

32. At the invitation of the Chairman, the General Manager of HYF (GM/HYF) briefed members on measures implemented by HYF to improve the operation of HYF's new licensed ferry services in the light of the feedback and comments received during the initial operation period of the services. He said that the Company had arranged a training course for all front-line staff with a view to further improving their performance.

Holiday Return Ticket System

33. Mr TAM Yiu-chung called on the Administration and HYF to consider the residents' request for reinstating the previous holiday return ticket system, i.e. extending the validity period of the return tickets to cover a day before and a day after Sunday or public holidays. However, noting the Company's stance as set out in paragraph 15 of the paper, he requested the Administration and HYF to revisit the subject matter in collaboration with the operator of the electronic ticketing system. He also opined that consideration should be given to extend the validity of the return tickets to straddle long holidays.

34. The Commissioner for Transport (Ag.) (C for T(Ag.)) advised that the Administration was liaising with the Company to see what improvement measures could be introduced in this regard to satisfy the residents' needs.

35 GM/HYF added that the Company was actively considering extending the validity of the holiday return tickets to straddle long holidays and would consult the Island Provisional District Board (IPDB) in September 1999 when the technical problem associated with the modification of the electronic ticketing system was resolved. He further advised that the modification work would incur a capital expenditure of no less than $2 million, with additional operating costs of $0.2 million per annum.

36. Mr LEUNG Yiu-chung requested the Company to consider providing a fare adjustment service for different classes and vessel types as the present arrangement was unfair to passengers. On some occasions, passengers might prefer to make use of an ordinary ferry for the return trip even if they had a return ticket for fast ferry as the schedules for the latter might not be convenient for them. GM/HYF advised that the Company's market plan was to migrate from manual ticketing system to electronic ticketing system so as to enhance efficiency and minimize related operational problems. The fare adjustment feature would be incorporated in the electronic ticketing system. He further said that the fare adjustment service made on board had created conflicts between passengers and the Company's staff in the past especially during summer holidays when a deluxe class passenger could not find a seat after buying a ticket at the ticket office. To improve the situation, it was considered more appropriate that passengers should decide to take ordinary class or deluxe class at designated turnstiles at pier.

Monitoring of service

37. In view of the grievance and complaints from residents about the outlying ferry service provided by HYF, Mr LEUNG Yiu-chung commented that the Administration had failed to monitor the service, and enquired the actions taken by the Administration since the new licensed ferry services commenced operation in April this year.

38. C for T (Ag) advised that since 1 April 1999, the Transport Department had been discussing with HYF on measures to improve the operation of HYF's new licensed ferry services in the light of the feedback and comments received during the initial operation period of the new licensed services. In general, the concerns of passengers mainly related to timetables, vessel quality and conditions, and fares. Regarding timetables of services, HYF had already arranged to increase the frequencies of individual routes on top of the tender requirements in response to demands from passengers. Regarding complaints about non-adherence to schedules, she said that Transport Department was liaising with HYF with a view to identifying suitable measures to improve the situation. This included, among other things, a review on the journey speed and the berthing arrangements for vessels. On vessel quality and conditions, HYF had also taken various measures to improve vessel conditions as set out in its submission tabled at the meeting. Transport Department would continue to liaise with HYF with a view to introducing further improvement measures. The Administration would also conduct survey to solicit passengers' views on how the services could be further enhanced to meet their needs.

39. Referring to the findings of a survey conducted on 23 July 1999, Mr LEE Wing-tat pointed out that more than 70% of the respondents considered the ferry services provided by HYF not reliable. They also complained about the existing level of service which was inadequate to meet passenger demand.

40. In reply, GM/HYF said that the Company had kept reviewing and monitoring closely its services by constant discussion with the Administration, relevant authorities, IPDB members, area committees and island residents. To enhance its services, arrangements had been made to further improve the frequency of ferry services for Peng Chau, Cheung Chau and Mui Wo during peak periods. Notwithstanding the reply, Mr LEE Wing-tat remarked that it took a long time for passengers to wait for another despatch if they failed to board on a vessel due to overloading. He therefore requested the Company to deploy larger vessels to address the transport needs of residents during peak periods.

41. Referring to the problem of late departure of sailings due to the need to wait for the last-minute passengers on board, GM/HYF explained that the Company had indeed put forward a proposal to the IPDB on the closing down of the ticket office before the scheduled departure time. However, the proposal was not supported by IPDB. Noting the reply, Mr LEE Wing-tat encouraged HYF to go back to IPDB and discuss the proposal of closing down the ticket office before the schedule departure time. In the light of members' comment on the irregularity of the service, GM/HYF said that he would further consult the IPDB on the said alternative arrangement.

(Post meeting note : The requested information was circulated to members vide LC Paper No. CB(1)1859/98-99).

Floating refuse

43. Mr HO Chun yan expressed concern about the problem of floating refuse which would lead to engine malfunction and, in turn, hinder the punctuality and reliability of ferry services. He requested the Company to look into the problem and provide the related statistics for members' information.

44. GM/HYF briefed members on the problem of floating refuse and the remedial measures taken when such problem was identified. He said that in order to speed up the related rectification work, the Company had already arranged to deploy stand-by divers near piers to address the problems. However, there might be cases where the vessel would need to be towed back to the shipyard for repair. To address the problem, the Company had been providing regular reports to the Marine Department for follow-up.

(Post meeting note : A letter setting out the average time of service disruption due to the vessel breakdown caused by the floating rubbish being trapped in the engine of a ferry was provided by HYF and circulated to members vide LC Paper No. CB(1)1859/98-99).

45. In response to Mr CHAN Kam-lam, C for T(Ag) advised members that subsequent to the enforcement actions taken by the Marine Department and the police, the illegal ferry services had ceased to operate. The Administration would closely monitor the situation and take appropriate enforcement actions as and when necessary.

VII Any other business
(1:00 pm onwards)

Bus fire accident

46. Mr LAU Kong-wah expressed grave concern about the recent bus fire accident. He urged the Administration to make a direct investigation rather than awaiting the report to be submitted by the Company. C for T (Atg) advised that after the incident, they had requested all bus companies to carry out a thorough examination on similar type of vehicles. The Transport Department had also requested Kowloon Motor Bus Company (1933) Limited to submit a detailed report on the incident in collaboration with the vehicle supplier. The Department would follow up the issue with a view to avoiding recurrence of similar incident in future. She stressed that Transport Department was equally concerned about vehicle safety as well as the repair and maintenance of vehicles. Apart from conducting annual vehicle inspection, the Department had been carrying out daily random checks on the buses as well. Transport Department had also asked the franchised bus operators to examine the feasibility of installing a fire extinguishing system in the engine compartment.

Vote of thanks

47. As this was the last regular meeting of the Transport Panel of the Legislative Council, the Chairman thanked members for their support and the Administration for its co-operation during the session.

48. There being no other business, the meeting ended at 1:05 pm.

Legislative Council Secretariat
22 October 1999