Legislative Council Panel on Transport

Review of the Transport Advisory Committee - Supplementary Note

Introduction

At the Panel meeting on 25 September 1998, Members discussed an information paper entitled "Review of the Transport Advisory Committee (TAC)" and requested the Administration to provide additional information on the Administration's consideration of the idea of setting up an independent committee to examine fare increase applications from all public transport operators.

Background

2. Our public transport network provides a wide range of choices at different fares to match different levels of speed, comfort and convenience. To ensure Hong Kong's transport operators can continue to provide a safe, reliable and efficient service without Government subsidy, they must have the necessary resources to cover operating costs, to replace assets, to upgrade equipment and to introduce new facilities and to build new extensions. Fare revenue is a very important recurrent source of income. If funding is inadequate, there will be a deterioration in the services provided by the public transport operators.

3. However, the scale of the upfront investment of a railway project is large, and the payback period long. Railway services have therefore been provided through two statutory corporations which are fully owned by Government. The MTRC was set up as a statutory corporation right from the start to construct the MTC and to operate it. The Kowloon-Canton Railway was initially set up as a Government Department but was transformed into a statutory corporation in 1982 to provide a more flexible organisation which could maximise commercial opportunities and have fewer constraints in staff deployment and the use of assets. The two corporations are charged to provide a safe, reliable, efficient, economical and commercially viable rail service to meet the transport needs of Hong Kong.

The Review Process

4. In formulating our proposals as set out in the paper presented to the Panel Meeting on 25 September 1998, we have made reference to the experience of overseas countries including the relevant information in the Report of the Delegation of LegCo's Panel of Transport to study Mass Transit Systems in overseas cities in 1997 as well as the submissions presented to the Panel in 1996-97.

5. We have also made reference to views expressed at the Provisional Legislative Council motion debate on 3 September 1997. During the debate, various ways to strengthen Government's monitoring of the railway corporations were suggested. The original motion to establish an independent statutory body responsible for, inter alia, railway fare matters was defeated. In the event, the amended motion that we should focus on how TAC can be strengthened was passed. The Secretary for Transport at the time pointed out that any changes to the terms of reference of the TAC, which has worked well for more than 30 years, should be supported by sufficient and convincing reasons.

Transparency and Accountability

6. It has been the policy of our transport operators to review their fares periodically having regard to operating costs, long-term financial requirements competition and public acceptability. Underlying the independent committee idea has been some public concern on whether there has been adequate transparency and accountability of the mechanism for determining fare.

7. For non-rail modes of transport which are operated by private companies, there have been established fare revision mechanisms requiring consultation with TAC and approval of the Executive Council and/or the LegCo. For railways, although both corporations are empowered by their respective ordinances to determine fares, they have taken steps in recent years to increase public consultation and the transparency of the fare determination process. At present, the TAC already serves a public watchdog role on transport matters, especially on fares.

8. When it comes to fares revisions, there is now a practice of obtaining feedbacks from the TAC and the Transport Panel of LegCo. In presenting proposals to the TAC and the Transport Panel of LegCo, the basis for any fare proposals are set out and full account is taken of the views expressed by these two bodies, as well as other interested parties before any final decision on fares is taken. In the case of railways, although the law provides for the final decision on fares to rest with the Managing Boards of the Corporation, it should be pointed that the Managing Boards are not made up of only Government officials but also independent and impartial individuals appointed by the Chief Executive. In arriving at the final decision, the Managing Boards examine the financial information presented to them and take into account views collected through the consultation process before arriving at a decision. Whoever is the final deciding authority, a balance has to be struck amongst the interests of the transport operator, the travelling public and the community at large.

Consideration of the independent committee proposal

9. The proposal for an independent committee to determine fares is intended to increase the transparency and accountability of the fare determination system. But this idea needs to be considered in the context of recent developments which see that the fare determination process for public transport services becoming more and more transparent and accountable already, as explained in paragraphs 7 and 8. With such developments, we believe we can achieve the objective of enhancing the transparency and accountability without the need to create any new structure. We do not believe the creation of a new independent committee can add value to the existing processes.

10. On the other hand, if we create a new independent committee, the committee will still have to go through the same consultation procedures and take the same factors into account before a final decision is taken. We do not see that the creation of such a new structure can replace any existing steps. It will only result in adding another layer in the bureaucracy and creates duplication to the existing process. It will also upset the current finely balanced roles and functions performed by different bodies in the fare determination process. The TAC plays an advisory role which is independent and impartial. The LegCo Transport Panel provides a forum for LegCo members to put across their views to Government. ExCo, LegCo and other transport operators play the roles required of them as set out in the respective ordinances or franchise agreements.

11. In the case of railways, it should also be pointed out that there are checks and balances built into the existing mechanisms to monitor fare increase proposals from the corporations. For example, two Government directors (Secretary for Transport and Secretary for the Treasury) are appointed by the Chief Executive (CE) to sit on the Managing Boards of the KCRC and MTRC to represent Government interests. This arrangement ensures that Government's transport and financial objectives are taken into account in the deliberation of the Boards. Independent persons are appointed by the CE to sit on the Managing Boards of the KCRC and MTRC to govern the operation and development of the corporations. The railway corporations are required to table their annual reports and the audited financial statements in LegCo. The railway corporations have also established and maintained their own passenger liaison schemes, and conduct regular customer surveys on their fares and services.

12. During the review process, both corporations have expressed strong views that the existing fare revision mechanism must be retained to enable them to convince lenders of their ability to achieve the projected revenue levels so that they can service their debts. This ability to borrow on sound financial projections is most important for the implementation of new railway projects. For example, the three priority railway projects alone cost well over $100 billion and the two corporations have undertaken to fund a significant portion of this from commercial borrowing. We accept the corporations' views. Fund raising is already difficult against the backdrop of the current economic climate. It should not be made more difficult by any structural change to the fare determination system of the corporations.

Conclusion

13. For railways, the research studies by MTRC and KCRC, as well as the LegCo Transport Panel's overseas study visit in 1997, have confirmed the success of our experience as compared with other railways in overseas countries which are subject to political pressure on fares revision and hence required heavy Government subsidies, resulting in railway systems significantly underfinanced.

14. Although our review has concluded that there should not be any structural change to the composition, membership or terms of reference of the TAC for the time being, we do feel that there is scope for making improvements to various aspects of monitoring as set out in our paper of 22 September 1998. We can instill a degree of accountability to the general public on our fare setting mechanism by codifying the current practice without the need to create a new structure.



Transport Bureau
16 October 1998