For discussion
FCR(97-98)104
on 20 March 1998

ITEM FOR FINANCE COMMITTEE

LOAN FUND
NEW HEAD "FIRE SAFETY"
New Subhead "Fire Safety Improvement Loan Scheme"

Members are invited to approve the creation of a new Head "Fire Safety" and, under the new Head, a new subhead "Fire Safety Improvement Loan Scheme" under the Loan Fund with a commitment of $200 million to provide loans to assist owners of prescribed commercial premises and specified commercial buildings who are required by legislation to upgrade or improve the fire safety of their premises or buildings.

PROBLEM

Owners of prescribed commercial premises and specified commercial buildings (hereinafter collectively called 'the affected buildings'), who have received statutory fire safety directions or fire safety improvement directions served under the Fire Safety (Commercial Premises) Ordinance (FS(CP)O) or the Fire Safety (Commercial Premises) (Amendment) Bill 1998 (FS(CP)(A)B) after its enactment, may need financial assistance in implementing the required measures to upgrade or improve the fire safety of their premises or buildings.

PROPOSAL

2.We propose to create a new Head "Fire Safety" and, under the new Head, a new Subhead "Fire Safety Improvement Loan Scheme" under the Loan Fund with a commitment of $200 million for providing loans to assist owners of affected buildings to improve or upgrade the fire safety of their premises or buildings.

JUSTIFICATION

3.Some owners of affected buildings may need financial assistance in order to improve or upgrade the fire safety of their premises or buildings as required by legislation, detailed in Enclosure 1. The proposed Fire Safety Improvement Loan Scheme (FSILS) will provide such assistance to them for the activities detailed in Enclosure 2. The Director of Fire Services will administer the FSILS and approve loans supported by an advisory committee. The advisory committee will comprise both Government officials and non-official members appointed from the fire safety and building safety industry.

4.We estimate that $200 million would be needed to provide loans to the applicants to the FSILS in the first phase of the implementation of the FS(CP)O and FS(CP)(A)B. The amount is calculated on the basis of the following -

1. The first phase of the implementation of the FS(CP)O and FS(CP)(A)B will cover about 500 prescribed commercial premises and 400 specified commercial buildings respectively in three years. Each year, enforcement action will be taken on about 160 commercial premises and 140 commercial buildings. We will seek this Committee's approval for funding of subsequent phases, if necessary;

2. based on the findings of surveys on the fire safety conditions of prescribed commercial premises and old commercial buildings, conducted by the Buildings Department and the Fire Services Department, we estimate that the average cost for upgrading the Fire Service Installations and building fire safety construction would be about $1.5 million and $5.2 million for each prescribed commercial premises and specified commercial building respectively; and

3. we assume that 10% of the owners of prescribed commercial premises and 20% of those of specified commercial buildings affected by the legislation would wish to seek financial assistance through the FSILS.

FINANCIAL IMPLICATIONS

6.The FSILS is a revolving loan facility with a commitment of $200 million. Interest will be charged at the average best lending rate from time to time quoted by the three note-issuing banks, as this is an appropriate benchmark for loans to commercial enterprises. The Fire Services Department will redeploy existing staff to cope with the additional workload arising from the administration of the FSILS.

Consultation

7.We consulted the Provisional Legislative Council Panel on Security on the proposed FSILS on 22 January 1998. We have not received any objection to the proposal.

Timetable

8.We expect that the FSILS will be open for application in mid-1998. We will provide owners of affected buildings with information on the proposed FSILS when we serve fire safety directions or fire safety improvement directions on them.

BACKGROUND INFORMATION

9.After the Garley Building Fire, the Administration has drawn up proposals to introduce legislation to improve the fire safety of old commercial buildings. During a three-month public consultation exercise carried out from May to July 1997 on the legislative proposal to improve fire safety of old commercial buildings, some people, whilst expressing support for our objective to upgrade the fire safety of old commercial buildings, raised concerns about the costs and practical difficulties of complying with the requirements. There were suggestions that the Government should consider setting up a loan scheme to provide financial assistance to affected owners.

10.The enforcement authorities will provide technical advice and guidance to owners. We will make use of the Home Affairs Department's new Building Management Resource Centre, to be established in mid-1998, to provide information and advice to building management bodies on ways to improve the fire safety facilities of their buildings. We are planning to set up a display unit and a library in the Resource Centre with information on contractors and authorised persons, the requirements under existing legislation as well as the relevant Codes of Practice. Members of the public may also contact the authorities through the Resource Centre to obtain practical advice on the required installations and works.

Security Bureau
March 1998

Enclosure 1 to FCR(97-98)104

Legislation or proposed legislation under which owners can apply for loans under the Fire Safety Improvement Loan Scheme

1. The Fire Safety (Commercial Premises) Ordinance (FS(CP)O), which came into operation in May 1997, requires owners of prescribed commercial premises (namely banks, off-course betting centres, goldsmiths and jewelry shops, shopping arcades and supermarkets) to improve the fire safety standards of their premises. The enforcement authorities may issue fire safety directions to require the provision and improvement of fire service installations, means of escape, means of access and fire resisting construction in prescribed commercial premises. The first phase of the implementation of the FS(CP)O will cover about 500 prescribed commercial premises in three years. Most of these premises were constructed before 1973 when the installation of sprinkler systems in buildings was not mandatory; and

2. the Fire Safety (Commercial Premises) (Amendment) Bill 1998, which was introduced into this Council on 21 January 1998, seeks to extend the scope of fire safety improvement of the FS(CP)O to pre-1987 commercial buildings. The first phase of implementation will cover about 400 specified commercial buildings (i.e. commercial buildings with their plans of building works first submitted to the Building Authority on or before 23 March 1973 or constructed before that date). The installation of sprinklers was not mandatory at the time when these buildings were built. Similar to the FS(CP)O, we will issue fire safety improvement directions requiring provision and improvements of fire safety measures in buildings to owners. We aim to complete this phase in three years.

Enclosure 2 to FCR(97-98)104

Activities to be Financed by the Fire Safety Improvement Loan Scheme

The loans will be offered to owners of affected buildings who need financial assistance to carry out -

1. works pertaining to Fire Service Installations and equipment of the premises or building, e.g. installation of automatic sprinkler systems, fire hydrant/hose reel systems, manual alarm systems etc.;

2. works pertaining to improvement of building structures for fire safety, such as means of escape, means of access for fire fighting and rescue, and fire resisting construction;

3. professional services in association with (a) and (b); and

4. associated, consequential or related works in connection with (a) and (b) (e.g. necessary reinstating works as a result of upgrading works).

Enclosure 3 to FCR(97-98)104

Parameters for the Grant of Loans under the Fire Safety Improvement Loan Scheme (FSILS)

The FSILS will be operated on a revolving basis with the Director of Fire Services (D of FS) as the loan administrator. The terms and conditions of loans granted under the FSILS are given below -

Purpose of the Loan

The FSILS will offer non-means-tested loans to owners of affected buildings who are required by legislation, detailed in Enclosure 1, to carry out upgrading or improvement works as detailed in Enclosure 2.

Maximum loan amount

The loan amount to be granted to an individual owner will be determined after taking into account the total cost of the upgrading or improvement works in relation to the individual unit and the common parts and the number of owners who wish to participate in the FSILS, subject to a ceiling of $1 million per owner. In exceptional cases, the D of FS may, subject to the prior agreement of the Secretary for the Treasury, approve a larger loan. We will require applicants to provide details of quotations/tenders for the required works from the contractors or authorised persons to the D of FS and Director of Buildings in support of their applications.

Release of loans

We will release loans by stages according to the works schedule and the actual progress of upgrading works. The borrowers will be required to submit progress reports certified by the contractors or authorised persons. The D of FS will conduct random inspections to ensure that the required works are carried out according to schedule and that loans are spent for the intended purposes.

Interest rate

Borrowers will pay interest at the average best lending rate from time to time quoted by the three note-issuing banks.

Repayment

Borrowers will repay the principal and interest of loan by instalments up to 36 months. The first instalment will become due one month after drawdown of each stage of the loan. With the prior approval of the D of FS, borrowers may opt for early repayment of the loan. We will charge interest at the prevailing best lending rate plus two percentage points, to cover administrative costs, on any unauthorised overdue amount until it is fully repaid.

Security

We will require borrowers to provide adequate security for the loan, which may take the form of a legal charge registered against the affected property or bank guarantee or such other form of security to the satisfaction of the D of FS.