PLC Paper No. FC 79
(These minutes have been
seen by the Administration)

Ref : CB1/F/1/2

Finance Committee of the Provisional Legislative Council

Minutes of the meeting
held at the Legislative Council Chamber
on Friday, 5 December 1997, at 2:30 pm

Members present:

Hon Ronald ARCULLI, JP (Chairman)
Hon Henry WU (Deputy Chairman)
Hon WONG Siu-yee
Hon James TIEN Pei-chun, JP
Hon David CHU Yu-lin
Hon HO Sai-chu, JP
Dr Hon Raymond HO Chung-tai, JP
Hon NG Leung-sing
Prof Hon NG Ching-fai
Hon LEE Kai-ming
Hon Allen LEE, JP
Hon Mrs Elsie TU, GBM
Hon Mrs Selina CHOW, JP
Hon Mrs Peggy LAM, JP
Hon NGAI Shiu-kit, JP
Hon Henry TANG Ying-yen , JP
Hon MA Fung-kwok
Dr Hon Mrs TSO WONG Man-yin
Dr Hon LEONG Che-hung, JP
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon MOK Ying-fan
Hon CHAN Choi-hi
Hon CHAN Wing-chan
Hon CHAN Kam-lam
Hon TSANG Yok-sing
Hon Frederick FUNG Kin-kee
Hon Andrew WONG Wang-fat, JP
Hon Kennedy WONG Ying-ho
Hon Howard YOUNG, JP
Dr Hon Charles YEUNG Chun-kam
Hon YEUNG Yiu-chung
Hon IP Kwok-him
Hon CHIM Pui-chung
Hon Mrs Miriam LAU Kin-yee, JP
Hon Ambrose LAU Hon-chuen, JP
Hon CHOY Kan-pui, JP
Hon CHENG Yiu-tong
Dr Hon TANG Siu-tong, JP
Hon KAN Fook-yee
Hon NGAN Kam-chuen
Hon LO Suk-ching
Dr Hon LAW Cheung-kwok
Hon TAM Yiu-chung, JP
Hon CHOY So-yuk

Members absent :

Hon Edward HO Sing-tin, JP
Hon Eric LI Ka-cheung, JP
Dr Hon David LI Kwok-po, JP
Hon CHEUNG Hon-chung
Hon LEUNG Chun-ying, JP
Hon HUI Yin-fat, JP
Hon CHAN Yuen-han
Hon CHENG Kai-nam
Dr Hon Philip WONG Yu-hong
Hon Bruce LIU Sing-lee
Hon LAU Kong-wah
Hon LAU Wong-fat, JP
Hon Paul CHENG Ming-fun, JP
Hon Timothy FOK Tsun-ting

Public officers attending :

Secretary for the Treasury

Mrs Carrie LAM, JP
Deputy Secretary for the Treasury

Principal Executive Officer (General), Finance Bureau

Mr Allan CHOW
Principal Assistant Secretary for Transport

Mr Peter LUK
Assistant Commissioner for Transport

Mr HO Kwong-wai
Engineering Branch Manager of Electrical and Mechanical Services Department

Mr FAN Ho-chuen
Project Manager of Electrical and Mechanical Services Department

Mr Joseph Y T LAI
Deputy Secretary for Education and Manpower (3)

Ms Ellen CHOY
Principal Assistant Secretary for Education and Manpower (2)

Mr Anthony K H TONG
Senior Assistant Director of Education

Assistant Director of Education

Mr Raymond P H CHAN
Senior Systems Manager of Information Technology Services Department

Mr Matthew K C CHEUNG, JP
Deputy Secretary for Education and Manpower (1)

Ms Michelle LI
Principal Assistant Secretary for Education and Manpower (1)

Mr William SHIU
Principal Assistant Secretary for Broadcasting, Culture and Sport

Ms Annie P LAU
Associate Director (Administration) and Registrar of the Hong Kong Academy for Performing Arts

Controller, Student Financial Assistance Agency

Mr Alfred WONG
Ex-Controller, Student Financial Assistance Agency
Clerk in attendance :

Ms Pauline NG
Assistant Secretary General 1

Staff in attendance :

Mrs Vivian KAM
Chief Assistant Secretary (1)5

Mr Matthew LOO
Senior Assistant Secretary (1)7

Item No. 1 - FCR(97-98)71


New Subhead "Replacement of toll collection and audit system in the Aberdeen Tunnel "

Referring to the frequent breakdown of the toll collection and audit system in the Aberdeen Tunnel in the past 12 months, members expressed concern on the disruption caused to traffic, particularly when the proposed system would not be in place until 2000. The Assistant Commissioner for Transport (AC/T) and the Engineering Branch Manager of Electrical and Mechanical Services Department (EBM/EMSD) assured members that the problems causing the breakdowns were mainly minor in nature. With the standby units in operation, no major disruption was caused to traffic. The system was under regular maintenance, but a fundamental problem was with the system ageing and the difficulties and costs for replacing the obsolete spare parts. Disruption to traffic during the works period was not envisaged as the proposed works would be undertaken at night when one of the two tubes was closed for maintenance. It was however not possible to shorten the time frame as the design of the system took time. AC/T confirmed in response to a member that the proposed system would last for 12 to 15 years, and that the classification of traffic into nine groups by the new system would facilitate traffic planning and analysis.

2.A member enquired about the different scales of charges adopted by the Electrical and Mechanical Services Trading Fund, as illustrated in the two papers put to the Committee for consideration at this meeting. While the project management charges for this proposal was $2.9 million, which constituted about 16% of the project cost of $18 million, the charges for the ensuing paper FCR(97-98)72 relating to the lighting system in the Lion Rock Tunnel was $5.5 million, ie, about 8.8% of the project cost. EBM/EMSD said in response that the charges in the two papers referred to two different types of services, one being electronics works and the other electrical and mechanical works. The charges were based on the standard scales drawn up by the Trading Fund for such services having regard to actual market situations.

3.On the gross revenue of $207 million for the tunnel in 1996-97 outlined in the discussion paper, AC/T confirmed in response to a member that this represented only the revenue. He undertook to advise the profits in 1996-97 in writing after the meeting. As regards the member's enquiry on the total operating costs of the management contractor, AC/T explained that such data was commercially sensitive and it was therefore not appropriate to release the information. Nevertheless, he confirmed that the tunnel was being operated at a profit and he undertook to provide relevant information on the revenue and expenditure of the tunnel so long as commercial secrets on the part of the contractor were not compromised. The Principal Assistant Secretary for Transport added that disclosure of sensitive commercial information might lead to unfair competition at the next tender exercise which, as AC/T confirmed, would be in September 1998.Admin


4.The Committee approved the proposal.

Item No. 2 - FCR(97-98)72

Transport Department
"New Subhead " Replacement of the lighting system in the Lion Rock Tunnel "

5.Given the 11-year gap between the installation of the existing lighting system in the southbound and the northbound tubes of the Lion Rock Tunnel, a member questioned the need to replace both systems at the same time. AC/T explained that replacement of the lighting system was necessary as the soiled light casings, which were seriously corroded due to the humid environment in the tunnel, had led to a lowering of the lighting level in the tunnel. Furthermore, spare parts and accessories of the obsolete light fittings were difficult and costly to obtain. Both systems in the southbound and the northbound tubes were proposed to be replaced at the same time so as to facilitate traffic control and to maximise resources.

6.AC/T confirmed in reply to a member that the management contractor of the Lion Rock Tunnel was different from that of the Aberdeen Tunnel. He advised that like the Aberdeen Tunnel, the Government was also making a profit in the operation of the Lion Rock Tunnel. He undertook to provide in writing information on the profits of the Lion Rock Tunnel in 1996-97 and data on the operating revenue and expenditure of the tunnel.Admin

7.The Committee approved the proposal.

Item No. 3 - FCR(97-98)73

Recurrent Account
Relevant subheads
Capital Account
-Subhead 834 Equipment for computer studies
New item "Enhancement of use of information technology in school education"
Subhead 001 Salaries
Subhead 111 Hire of services and professional fees

8.Mrs Elsie TU declared interest as supervisor of a school.

9.The Chairman enquired on the possibility of adjusting the cashflow forecast for the project in the event that the information technology facilities could be made available to public sector schools within a shorter period of time. The Deputy Secretary for the Treasury explained that the projected cashflow given in the paper was indicative only and served the purpose of financial planning. As long as total expenditure on the project was within the commitment to be approved by members, there would be no constraints in adjusting the cashflow to match the actual expenditure requirements under an expedited programme.

10.Following up on the Chairman's enquiry, a member asked if consideration had been given to delegating the authority for buying the computers to the school management in order to speed up the process. In response, the Senior Assistant Director of Education (SAD/E) advised that the Administration was aware of the need to provide flexibility to schools for purchasing items such as consumables and peripherals. However it might not be cost-effective for individual schools to buy their own computers direct, as the prices thus obtained would not necessarily be cheaper than those from a bulk purchase. Besides, some of the schools might not have the technical know-how in getting the kind of computers which would be compatible with the new Intranet applications which the Education Department intended to introduce to all schools. The feasibility of this option would therefore need careful consideration. The Senior Systems Manager of Information Technology Services Department assured members that the computers to be purchased would not lag behind those in the market, and confirmed in reply to a member that the shelf life of hardware was about five years based on the past trend of the processing demand of relevant software.

11.As regards the compatibility of computers currently in use with the new computers, SAD/E explained that computers currently used were acquired through bulk purchases and as such were basically standardised in applications. No difficulties were therefore envisaged in linking the existing computers with the proposed Intranet System.

12.On the criteria for determining the size of schools, and hence the recurrent grant to be provided for the purchase of consumables and peripherals, SAD/E advised that the formula was based on the number of classes. Schools with less than 15 classes would be regarded as smaller schools. All schools would be provided with an adequate number of computers. Primary schools, on average, would be given 40 computers each. Even small village schools with only six classes would also be provided with computers commensurate with their needs.

13.A member noted from the discussion paper that the cost for a set of computer varied significantly for the different types of public sector schools. SAD/E explained that while the cost for the hardware would be identical, the cost for the peripherals and the degree of support services differed in accordance with the needs of different types of schools. Special schools, for example, although small in terms of class size, would require special software features.

14.As the proposal called for the training of about 30 000 teachers at three different levels, members expressed concern at the effect which such arrangements would have on their teaching duties. SAD/E affirmed that suitable arrangements would be made to cover the teachers' absence. He assured members that the software was very user friendly, and that the three-days' basic training supplemented by the five-days' intermediate training should be able to equip teachers with the necessary skills to use computers in their teaching duties. On the other hand, the two-year advanced training would train up teachers identified by schools for implementing information technology in schools with the assistance from the Education Department. Although the completion of these courses would not bring about any salary increases, the Administration was confident that teachers would attend such courses in a spirit of professionalism, and that such training would enhance teaching quality in the long term.

15.With regard to the pilot scheme for establishing best practices for using information technology in education, SAD/E advised that the Administration would conduct a review on the effectiveness of the scheme in the short term. This would be followed by a major review on the development of the whole project in one year's time.

16.The Committee approved the proposal.

Item No. 4 - FCR(97-98)74

Subhead 001 Salaries
Subhead 149 General departmental expenses
Subhead 274 Student finance - grants
Subhead 101Students of the universities, Lingnan College, technical colleges, Prince Philip Dental Hospital and Hong Kong
Institute of Education New Subhead "Non-means Tested Loan Scheme for students of government-funded tertiary institutions"

17.At the Chairman's invitation, the Deputy Secretary for Education and Manpower (1) (DS/E&M(1)) briefed members on the background of the proposed new Non-means Tested Loan Scheme (NLS). Two means-tested schemes were currently in force to provide financial assistance to eligible full-time local students studying at tertiary institutions: the Local Student Finance Scheme (LSFS) which provided grant as well as loans at an interest rate of 2.5%, and the Extended Loan Scheme (ELS) which provided loans at 4% interest rate. Following a consultancy review and public consultation, the Joint Committee on Student Finance (JCSF) which was responsible for advising the Government on the operation of the LSFS accepted the recommendation of the consultants for replacing ELS by the new NLS. The new scheme, which would offer a new channel of finance to those students who did not want either to rely on family support in pursuing their university studies or to reveal their family circumstances, would operate on a no-gain-no-loss and cost recovery basis. As opposed to a maximum repayment period of five years for loans under both LSFS and ELS, loans under the new scheme could be repaid over a period of ten years. To take into account the longer repayment period and the fact that the scheme would not be subject to means tests, the consultants had on the basis of experience overseas particularly in New Zealand recommended an additional interest rate of 1.5% to cover the risk factor. This proposal had been accepted by the JCSF after lengthy discussions. DS/E&M(1) concluded that as the scheme was unprecedented, the Administration had to strike a balance between providing assistance to students on the one hand and taking a cautious approach on the other.

18.Members generally welcomed the introduction of the NLS. Some members however expressed reservations over the additional interest rate of 1.5% to cover the risk factor, and sought elaboration on the bad debt situation of the existing schemes. DS/E&M(1) advised that as at end of October 1997, there were 644 cases (1.13%) of delayed payment if counted on the basis of the number of accounts, or 1.43% if counted on the basis of the number of students. The percentage of bad debt on the other hand was 0.1%. Having regard to the low percentage of bad debt of 0.1%, some members did not consider it fair for all loan applicants to bear the additional 1.5% interest rate. A member also pointed out that as people in Hong Kong generally performed well in managing their finance, situations overseas might not be applicable in Hong Kong.

19.Members sought clarification on the actual rate of interest applicable which, as they were given to understand at the meeting of the Education Panel when the subject was discussed, would be that for loans under the Civil Service Housing Loan Scheme (CSHLS) of 6% plus the 1.5% risk factor. While confirming that the interest rate would be based on that of the no-gain-no-loss principle as for the CSHLS, DS/E&M(1) emphasised that the 6% quoted at the Panel meeting was indicative only and that the percentage would fluctuate depending on market situation. Over the last few years, the CSHLS rate had fallen to as low as 4.75% in February 1993. In response to the Chairman, the Secretary for the Treasury advised that the prevailing no-gain-no-loss interest rate, which took effect on 1 December 1997 and represented the mean of the monthly average of the yields of one-year and two-year Hong Kong Monetary Authority Exchange Fund Bills/Notes, was 7.99%. The Administration would review the average rate every month, and revise the rate from the first day of the following month should there be a change of up to 1% in a particular month. A member remarked that, in the circumstances, the interest rate of about 8% plus 1.5% for the new scheme would almost be equivalent to the prime rate.

20.In response to members on the views of the JCSF on the 1.5% risk factor, DS/E&M(1) advised that the student representatives of the JCSF had initially expressed concern, but had ultimately accepted the proposal. He confirmed in reply to the Chairman that JCSF had been invited to consider the range of options recommended by the consultants, and chose to focus on the option of no-gain-no-loss with the risk margin. As regards flexibility for the repayment period of ten years, DS/E&M(1) said that while loan recipients could choose to make early repayments, the repayment period could be adjusted depending on the financial situation of the loan recipients.

21.On the effect of the new scheme on students, a member pointed out that as opposed to the prevailing situation whereby those who marginally failed the LSFS could turn to the ELS with an interest rate of 4%, such students would in future have to bear a higher interest rate of 7.5% or more. The Chairman asked for an estimate on the number of such students. DS/E&M(1) said in response that while some students would be affected, the impact should not be significant and the number of such students should only be in the region of a few hundred. On the other hand, some borderline cases would become eligible under the new scheme and over 1 300 students who would otherwise be disqualified under the existing LSFS would become eligible. DS/E&M(1) stressed that the new scheme was part of a package of proposals for improving LSFS. The prevailing Annual Disposal Income formula, which was derived from deducting expenditure from the income of applicants' family, was providing less assistance to families which exercised prudence in spending. The asset test also favoured the holding of real properties over liquid assets such as bank deposits and shares asset test. The proposed improvements would be more equitable in providing assistance to those genuinely in need. As to the number of students to be affected by the proposed change in formula, DS/E&M(1) explained that such an estimate was not available as the family circumstances of the students would differ.

22.Some members remained unconvinced of the justifications for the 1.5% risk adjustment. They were worried that students would thus be required to pay more than was warranted and this would deviate from the no-gain-no-loss principle. Some suggested that the CSHLS interest rate could be used as the base to start with, with adjustments to be made in future if the situation of bad debts deteriorated. A suggestion was also made for the Government to pay back to the students interest overcharged if so confirmed by a subsequent review. The Chairman reminded members that while the Administration could give an indication of its intention, it could not give any undertaking at that stage. Furthermore, the voting of funds would be by a future Finance Committee and would be dependent on the need for public finance at the time.

23.A member nevertheless pointed out that the additional interest accrued from the 1.5% for a loan of $25,000 would only be about $400 per annum. As the small amount would unlikely cause undue hardship to students, he expressed support for the proposal. Another member however cautioned that the amount quoted only represented the interest for one year and that the rate would be further compounded.

24.Following on from the reservations outlined above, Mrs Selina CHOW asked if the item could be deferred to a subsequent meeting to allow time for the Administration to further consult the JCSF on not including the risk factor for the time being. In response, DS/E&M(1) reiterated that the new scheme had been deliberated by JCSF for over one year. Any changes to the proposals would require re-submission to JCSF which would be time-consuming as it would be necessary to brief some new members recently appointed. As the new scheme was scheduled for implementation in 1998 as pledged by the Chief Executive in his 1997 Policy Address, further consultation would delay the implementation schedule. In response to the Chairman, the Deputy Secretary for the Treasury (DS/Tsy) confirmed that the Administration would not wish to defer the item.

25.Mr Andrew WONG proposed separate voting for the part of the proposal on expansion of the ambit of LSFS to students of the Hong Kong Academy for Performing Arts in order that this part would not be held up unnecessarily. In response to the Chairman, DS/Tsy said that the Administration was not prepared to split the item for voting. She however assured members that the Administration would bring a separate paper back to Finance Committee for that part of the proposal concerning the Hong Kong Academy of Performing Arts as soon as possible should the item be unfortunately negatived at the meeting.

26.Mrs TSO WONG Man-yin pointed out that members were basically supportive of the proposed changes, but had reservations on the inclusion of the 1.5% risk factor. She urged the Administration to conduct an early review on the risk adjustment and come back to the Committee with relevant proposals as soon as was practicable. DS/E&M(1) undertook to conduct such a review one year after the first loans were due for repayment, i.e. towards the end of the year 2000.

27.The Chairman then put the item to vote. The Committee approved the proposal.

Item No. 5 - FCR(97-98)75

New Subhead "Travel subsidy for primary school pupils"

28.A member held the view that pupils who chose to attend schools outside their residing Primary One Admission Nets (Nets) should not be eligible for the travel subsidy. The Controller, Student Financial Assistance Agency (C/SFAA) explained that there were different reasons for parents sending their children to schools outside the Nets. These included for example the proximity of such schools to their places of work or residences of their relatives. Furthermore, pupils of families which had moved homes might continue to attend schools of their former residing Nets. C/SFAA advised that the general principle was not to deny the subsidy to needy pupils. The ex-Controller, Student Financial Assistance Agency confirmed in response to a member that pupils residing in Shenzhen would also be eligible for the subsidy.

29.The Committee approved the proposal.

30.The Committee was adjourned at 4:40 pm.

Provisional Legislative Council Secretariat
9 January 1998