FCR(1999-2000)25

For discussion
on 25 June 1999

LOAN FUND
HEAD 252 - LOANS TO SCHOOLS/TEACHERS
New Subhead "Slope Improvement Loan Scheme for Private Schools"

Members are invited to approve the creation of a commitment of $100 million to provide loans to private schools for upgrading their sub-standard slopes.

PROBLEM

Some private schools ¹ have received Dangerous Hillside Orders (DHOs) served by the Building Authority (BA) under section 27A of the Buildings Ordinance in respect of sub-standard slopes under their maintenance responsibility. They have difficulties in raising funds within a short period of time to carry out the required investigation and upgrading works.

PROPOSAL

2. With the support of the Secretary for Education and Manpower, the Director of Education (D of E) proposes to provide loans to private schools for them to upgrade sub-standard slopes under their maintenance responsibility as required by DHOs.

JUSTIFICATION

3. Sub-standard slopes in respect of which a DHO is served require immediate remedial action to minimise the risk of landslip ² . A total of 22 private schools have received DHOs from the BA in respect of 31 sub-standard slopes under their maintenance responsibility. Of these 22 private schools, 16 have indicated difficulties in raising funds within a short period to carry out the required upgrading works.

4. To ensure the safety of the public at large and the students and staff in the schools affected in particular, we consider it necessary to make available loan facilities to private schools served with DHOs to carry out the remedial work for their sub-standard slopes involving the following activities -

1. employment of Authorised Persons and qualified geotechnical engineers to study, design and supervise the slope upgrading works;
   
   
2. employment of qualified contractors to carry out ground investigation works including laboratory testing; and
   
   
3. employment of qualified contractors to carry out slope upgrading works.

5. We propose to offer the loans on a non-means-tested basis (i.e. without requiring the school to prove its financial position) to enable the schools to take prompt remedial action. Loans to non-profit-making private schools will be interest-free whereas those to profit-making private schools will bear interest at the "no-gain-no-loss" rate ³. Details of the scheme are set out at the Enclosure.

6. Subject to Members' approval, the Education Department (ED) will start inviting applications for loans immediately. It will administer the loan scheme and approve loans with the support of an advisory committee comprising Government officials from the Civil Engineering Department and the Buildings Department. The committee will advise, among other things, on the amount of loan to be approved to ensure that the cost commensurates with the works to be carried out.

FINANCIAL IMPLICATIONS

7. D of E estimates that the loan scheme will require about $100 million, based on the following considerations -

1. the average cost for investigating and upgrading a sub-standard slope is about $4 million (at December 1998 prices) under the Landslip Preventive Measure Programme ⁴. This is the best estimate available at this stage for assessing the average slope-upgrading cost; and
   
   
2. according to the schools' preliminary indication in March 1999, at least 16 private schools will require financial assistance to upgrade 22 sub-standard slopes.

8. The loan will operate on a revolving basis. This means that repayment by borrowing schools will be credited back to the scheme for future loans for other new applicants (for example, there could be cases where existing standard slopes may turn sub-standard in future). In any case, the total amount of loans outstanding at any one time cannot exceed the approved commitment. We will review the adequacy of the commitment after the first year of operation in the light of the take-up rate and the amount of loans granted. When an increase in commitment proves necessary, we will seek approval of the Finance Committee.

9. There will be no additional staffing implications as D of E will redeploy existing staff to cope with the additional workload arising from the administration of the loan scheme.

Interest Forgone

10. The interest forgone for every $1 million interest free loan made to non-profit-making schools is about $159,000 if the loan is repaid within five years or $315,000 if the loan is repaid within ten years, at the Government "no-gain-no-loss" rate of 6.25% per annum which is 2% below the average best lending rate of the note-issuing banks.

BACKGROUND INFORMATION

11. After screening 1 965 slopes affecting schools, the Geotechnical Engineering Office has identified 31 sub-standard slopes under the maintenance responsibility of 22 private schools. The BA has issued DHOs in respect of these slopes. Of the 22 schools, 15 have already appointed Authorised Persons and qualified geotechnical engineers to deal with 21 sub-standard slopes. As regards the remaining ten sub-standard slopes, one has been upgraded, one is being handled by the BA ⁵ and eight are pending action by the schools concerned. All 22 schools will be eligible to apply for loans under the proposed scheme.

12. For aided schools served with DHOs, the upgrading cost is financed in full by Government under Subhead 8023EC Repairs to slopes served with Dangerous Hillside Orders under Head 708 of the Capital Works Reserve Fund. For DSS schools served with DHOs, if the cost is $2 million or below, the works can be funded from their recurrent subsidy which contains an element for maintenance and repair. For slope repairs costing over $2 million, non-profit-making DSS schools may apply to the Government for a capital grant. Such major repair works will be funded under block allocation Subhead 8100QX Alterations, additions, repairs and improvements to education subvented buildings under Head 708 of the Capital Works Reserve Fund. Profit-making DSS schools can apply to Government for a loan for emergency repairs covering slope repair works. Request for this loan will be subject to approval of the Finance Committee.

13. ED has consulted the relevant school associations. They are all supportive of the proposed loan scheme.





Education and Manpower Bureau
June 1999

Enclosure to FCR(1999-2000)25

Purpose

Loans will be offered to private schools, other than those under the Direct Subsidy Scheme, for upgrading sub-standard slopes in respect of which a Dangerous Hillside Order has been served.

Loan amount

2. The loan amount to be granted to an individual school will not be subject to means testing of the school, but will be determined after taking into account the total cost of the works. We will require the applicants, in support of their applications, to provide details of fees proposal of the required works from the registered contractors and/or authorised persons registered under the Buildings Ordinance.

Release of loans

3. We will release the loans by stages according to the actual progress of works. The borrowers will be required to submit progress reports and payment certificates certified by the authorised persons and/or supporting invoices certified by the registered contractors. We may consult the Director of Buildings to verify the progress as reported.

Interest

4. Profit-making schools will pay interest at the "no-gain, no-loss" rate. The Director of Education (D of E) may, on the advice of the advisory committee, grant an interest-free loan for non-profit-making schools. In the event that a non-profit-making school becomes profit-making after the approval of loan, interest at the "no-gain, no-loss" rate will start to accrue for the outstanding loan at the time of its turning profit-making. On the other hand, where a profit-making school becomes non-profit-making, its outstanding loan will be interest free after the time of change in status.

Repayment

5. Borrower schools will normally repay the loan principal and, where applicable, interest by installments within a period of up to 60 months. This may be extended to a maximum of 120 months having regard to justifications. The first installment will become due one month after the final drawdown of the loan. With the prior approval of the D of E, borrowers may opt for early repayment of the loan. We will charge interest at the prevailing best lending rate to cover administrative costs on any unauthorised overdue amount until it is fully repaid.

Security

6. We will require borrowers to provide adequate security for the loan, which may take the form of a legal charge registered against the property, or a bank guarantee, or such other form of security to the satisfaction of the D of E. D of E may also waive the requirement for the provision of security for the loan after considering the circumstances of individual cases. For the unsecured loan, the applicant is required to provide a guarantor.

1.Private schools in this submission do not include schools which have joined the Direct Subsidy Scheme (DSS). As part of the scheme, DSS schools may receive financial assistance for slope repairs as described in paragraph 12 below.

2. Normally, a DHO requires the appointment of an Authorised Person within two months to co-ordinate the required work, and the submission of remedial proposal for approval by the BA within a further six to eight months. Upon approval of the proposal, the owner of the slope is expected to carry out works in accordance with the approved remedial proposal. Under section 40(1B) of the Buildings Ordinance, any person who fails, without reasonable excuse, to comply with a DHO served on him shall be liable on conviction to a fine of $50,000, to imprisonment for one year and to a further fine of $5,000 for each subsequent day during which the failure to comply with the order has continued.

3.The "no-gain-no-loss" interest rate is set at 2% below the average best lending rate of the note-issuing banks. This formula ensures that the interest rate will move in tandem with the market lending rate and that there will be no resultant gain or loss to Government. The Director of Accounting Services will review the interest rate at the end of each month and adjust it when the difference between the updated rate and the prevailing rate is one percentage point or more, or when the prevailing rate has remained stationery for over six months.

4.Landslip Preventive Measure Programme is an on-going programme undertaken by the Geotechnical Engineering Office since 1977 for reducing the risk of landslides in Hong Kong.

5.In the case of emergency, the BA will carry out the necessary works to remove the imminent danger arising from a private slope. The owner of the slope will be asked to reimburse the cost to the BA.