LC Paper No. CB(1)912/98-99
(These minutes have been
seen by the Administration)

Ref: CB1/PL/ES/1

Legislative Council
Panel on Economic Services

Minutes of special meeting held on
Friday, 11 December 1998, at 8:30 am
in the Chamber of the Legislative Council Building

Members present :

Hon James TIEN Pei-chun, JP (Chairman)
Hon Fred LI Wah-ming (Deputy Chairman)
Hon Kenneth TING Woo-shou, JP
Hon LEE Wing-tat
Hon Martin LEE Chu-ming, SC, JP
Hon Eric LI Ka-cheung, JP
Hon CHEUNG Man-kwong
Hon HUI Cheung-ching
Hon CHAN Yuen-han
Hon CHAN Kam-lam
Hon SIN Chung-kai
Hon WONG Yung-kan
Hon Howard YOUNG, JP
Hon Mrs Miriam LAU Kin-yee, JP
Hon Andrew CHENG Kar-foo
Hon FUNG Chi-kin

Members attending :

Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon James TO Kun-sun

Members absent :

Hon David CHU Yu-lin
Dr Hon David LI Kwok-po, JP
Hon MA Fung-kwok
Hon Ambrose CHEUNG Wing-sum, JP
Hon Christine LOH
Hon Bernard CHAN
Dr Hon Philip WONG Yu-hong
Hon LAU Chin-shek, JP

Public officers attending :

For Agenda Item IV

Mr Stephen IP, JP
Secretary for Economic Services

Mr Richard YUEN
Deputy Secretary for Economic Services

For Agenda Item V

Mr Stephen IP
Secretary for Economic Services

Mr KWAN Wing-wah
Deputy Secretary for Economic Services
(Economic Services) 1

Mrs Lessie WEI
Director of Agriculture & Fisheries

Deputy Director, Architectural Services Department

Miss Dora FU
Principal Assistant Secretary for Economic Services

Miss Vera SO
Assistant Director (Administration & Markets)
Agriculture and Fisheries Department (AFD)

Mr Raymond KO
Senior Market Development Officer - AFD

Assistant Director (Architectural) - ASD

Chief Project Manager - ASD

Senior Architect - ASD

For Agenda Item VI

Mr Stephen IP
Secretary for Economic Services

Ms Maria KWAN
Deputy Secretary for Economic Services
(Economic Services) 2

Mr Albert K Y LAM
Director of Civil Aviation
Civil Aviation Department

Mr Simon LI
Chief Planning Officer
Civil Aviation Department

For Agenda Item VII

Mr Stephen IP
Secretary for Economic Services

Ms Maria KWAN
Deputy Secretary for Economic Services
(Economic Services) 2

Attendance by invitation :

For Agenda Item IV

Hong Kong Shippers' Council

Mr CHAN Wing Kee

Mr Willy LIN
Vice Chairman

Mr Clement YEUNG
Executive Director

Liner Conferences

Mr Michael FINEGAN
Chairman, Intra-Asia Discussion Agreement

Representative of Transpacific Stabilization
Agreement & Asia North America East Bound
Rate Agreement

Mr Karsten KILDAHL
Hong Kong Chairman, Far Eastern Freight

Chairman, Hong Kong Liner Shipping Association

Container Terminals Operators

Managing Director, Modern Terminals Limited

Mr William FLYNN
Chairman, Sea-Land Orient Terminals Limited

Mr Eric IP
Executive Director,
Hongkong International Terminal Limited

Ms HAI Chi-yuet
Director/General Manager,
COSCO-HIT Terminals (Hong Kong) Limited

For Agenda Item VI

Airport Authority

Mr Billy LAM
Acting Chief Executive Officer

Mr Howard ENG
Deputy Airport Management Director

Dr Graham PLANT
Head of Engineering

For Agenda Item VII

Airport Authority

Mr Billy LAM
Acting Chief Executive Officer

Miss Sophia KAO
Human Resources Director

Clerk in attendance :

Mr Andy LAU
Chief Assistant Secretary (1)6

Staff in attendance :

Mr Daniel HUI
Senior Assistant Secretary (1)5

I. Confirmation of minutes and matters arising

(LC Paper No. CB(1)593/98-99 - Minutes of the meeting held on 26 October 1998)

The minutes of the meeting held on 26 October 1998 were confirmed.

II Information papers issued since last meeting

(LC Paper No. CB(1)519/98-99 - Information Paper on Supplementary Provision under Head 142 - Government Secretariat Offices of the Chief Secretary for Administration and the Financial Secretary, Subhead 111 Hire of Services and Professional Fees

LC Paper No. CB(1)551/98-99 - Flight Allowance for Flight Operations Inspectors

LC Paper No. CB(1)557/98-99 - Japan's Emergency Economic Package

LC Paper No. CB(1)602/98-99 - Commissioner for Tourism and the Supporting Teams)

2. Members noted the information papers issued since last meeting.

III Items for discussion at the next meeting scheduled for 30 December 1998
(LC Paper No. CB(1)592/98-99(01) - List of outstanding items for discussion)

3. Mr Fred LI Wah-ming said that since the Administration had indicated that the consultancy study on increased interconnection between the two power companies had yet to be finalized, the Panel meeting scheduled for 30 December 1998 to discuss subjects related to the electricity supply sector in Hong Kong should be deferred pending release of the consultancy report. He suggested and members agreed that a special meeting should be convened in mid-January 1999 subject to the availability of the report.

(Post-meeting note: The Administration advised in a letter dated 31 December 1998 that the consultancy study of interconnection and competition in the electricity supply sector would not be completed for discussion by mid-January 1999.)

IV Terminal handling charges
(LC Paper No. CB(1)592/98-99(02) - information paper provided by the Administration

LC Paper No. CB(1)621/98-99(01) - a submission from Commercial Management Ltd.

LC Paper No. CB(1)621/98-99(02) - a submission from Hong Kong Shippers' Council)

4. The Chairman, Mr Kenneth TING Woo-shou, and Mr HUI Cheung-ching declared interests on the subject and indicated that some companies under their control were clients of a few shipping lines.

5. Mr Kenneth TING Woo-shou said that he had received complaints from the Hong Kong Shippers' Council (HKSC) and some exporters about excessive increases in terminal handling charges (THC) in the last few years. Despite protests made by HKSC, the shipping lines failed to provide data to justify the increases. He had therefore proposed that the subject be discussed at the Panel.

Meeting with representatives of Hong Kong Shippers' Council

6. Mr CHAN Wing-kee, Chairman of HKSC, briefed members on HKSC's position on the matter as set out in its written submission. The salient points were as follows :

  1. HKSC had all along objected to THC since their first introduction in 1990 as a separate charge from ocean freight, purportedly to cover charges at the container terminals.

  2. Hong Kong's THC were two to four times of those applied to other ports in Shenzhen, Singapore and Shanghai. Hong Kong's THC had reduced the competitive edge of our exporters, hurt our importers and adversely affected Hong Kong's position as a hub port.

  3. Some 80% of our exports were on FOB (Free-On-Board) terms, with importers responsible for paying the freight rates and Hong Kong exporters paying THC. Under FOB terms, importers would decide on the choice of vessel and Hong Kong exporters would have no choice but to pay THC levied by the shipping line concerned.

  4. Hong Kong's THC was out of line with freight rates. The THC for a 20-foot container was HK$1,800 as against the freight rates of HK$250 to Kaohsiung, HK$780 to Singapore and HK$2,000 to Pusan.

  5. In 1998, the Intra Asia Discussion Agreement (IADA) increased the THC by 20%. The Transpacific Stabilization Agreement (TSA) and the Canada Transpacific Stabilization Agreement (CTSA) had announced a 26% increase in THC as from January 1999. HKSC considered the increases unacceptable.

  6. HKSC considered that THC should be abolished by incorporating it back to the freight rates i.e. back to pre-1990's arrangement.

7. Mrs Miriam LAU Kin-yee said that HKSC should be aware that THC covered many cost items and the terminal charge levied by terminal operators was one of them. As such, it was not abnormal for the overall THC to become higher even though the terminal charge remained at the same level. She also enquired how a reversion to the pre-1990 shipping rate structure would be helpful to Hong Kong's exporters. Mr CHAN Wing-kee replied that the shipping lines had indicated that THC were mainly to recover terminal charges levied by terminal operators. He would therefore consider the level of THC reasonable if they were equivalent to actual terminal charges plus a 10% margin to cover administrative and other costs of the shipping line. He further advised that HKSC had been informed by other sources that THC were currently about double the terminal charges levied by terminal operators. If there were no separation of freight rates and THC, 80% of Hong Kong's exporters on FOB terms would benefit.

8. Mr Kenneth TING Woo-shou enquired about overseas experience in enacting legislation to regulate THC. Mr CHAN Wing-kee advised that under the Australian legislation, shipping lines were required to consult the shippers representatives before adjusting THC but such legislation was not effective and shipping lines could insist on increasing THC despite objections from the shippers representatives. He opined that the best solution was to restore the pre-1990 shipping charge structure under which a single shipping rate covered both freight rates and THC.

Meeting with representatives of shipping lines and terminal operators

9. On behalf of the shipping lines, Mr Roberto GIANNETTA, representative of Transpacific Stabilization Agreement & Asia North America East Bound Rate Agreement, referred to his written submission and highlighted the following salient points :

  1. The separate charges for freight rates and THC were applied globally by all shipping lines and it was not a Hong Kong-specific issue. The same formula was used in calculating THC in different ports.

  2. THC was a compensation for services provided at the shoreside. Hong Kong shippers could negotiate with their importers on who should bear the THC.

  3. THC had not reduced Hong Kong's competitiveness as evidenced from continued growth in exports from Hong Kong over the last 10 years. The decrease in export in 1998 was a result of economic turmoil in Asian economies rather than the THC applied in Hong Kong port.

10. Mr William FLYNN, Chairman, Sea-Land Orient Terminals Limited, opined that terminal operators had made and would continue to make very significant investments in building container terminals which had enhanced Hong Kong's competitiveness as a hub port for carriers to and from North America and Europe. He also said that THC should be resolved as a commercial matter amongst exporters, importers, terminal operators and carriers.

11. Mr HUI Cheung-ching pointed out that before 1990, an exporter was not required to bear the shipping charges for export shipped on FOB terms. However, with the separation of freight charges and THC since 1990 and the substantial increase in THC, an exporter had to pay about 15% - 20% of his gross profit on THC nowadays even if the export was on FOB terms. He quoted an example that the freight rate for shipping a container to Middle East was HK$8,000, and the THC cum trucking cost would amount to HK$3,600. He enquired whether representatives of the shipping lines and terminal operators would consider this level of THC reasonable. In response, Mr FLYNN advised that a shipper had to look at the total shipping costs as including freight rates and THC. He pointed out that total shipping costs for Hong Kong shippers had decreased over the last 10 years. Mr Karsten KILDAHL, Hong Kong Chairman of Far Eastern Freight Conference, further advised that the separation of shipping rates into freight rates and THC in 1990 was mainly to reduce currency risks faced by the carriers. In order to avoid a sudden impact on shippers, the THC for 1990 was intentionally set at a low level and therefore the 143% increase in THC over the last 10 years only reflected a delayed increase in THC.

12. Mr CHAN Kam-lam said that he was against the suggestion to regulate THC by legislation as this would ruin Hong Kong's free market economic structure. He opined that there had to be sufficient return in order to attract investments in developing container terminal facilities which involved very large amount of funds. He agreed that continued increase in THC would erode Hong Kong's competitiveness as a hub port and lead to cargoes being diverted to neighbouring ports. He urged shipping lines and terminal operators to increase the transparency in setting THC. In response, Mr KILDAHL advised that the quality of service had to be taken into account in assessing the level of THC. Hong Kong's high THC were justified by its high quality of service compared with other ports in the region. He further advised that shipping lines were investing in more modern and bigger vessels to improve cost effectiveness which would also increase Hong Kong's competitiveness as a hub port in the region.

13. On behalf of Members of the Democratic Party (DP), Mr Fred LI Wah-ming said that whilst DP was not suggesting to regulate THC by legislation, there had to be free competition. He pointed out that during 1998, THC levied by shipping companies were increased while the terminal operators maintained their charges at the same level. He urged the shipping lines to provide justifications for this anomaly. Mr GIANNETA advised that THC covered charges paid to terminal operators and other cost items and the fluctuation in these other items necessitated the increase in THC in 1998. He reiterated that the setting of THC was a commercial issue and as far as the IADA and TSA were concerned, prior consultation were made with HKSC, and 30-day to 60-day prior notifications were given before adjustments of THC were made. He stressed, however, that the freight rates were determined by market forces.

14. Mr Martin LEE Chu-ming stressed that DP supported free market economy and strongly objected to any price cartel. He hoped that the issue could be resolved through discussions between the Government and the relevant parties. DP would follow up the issue if a satisfactory solution could not be reached. Mr Neil RUSSELL, Chairman of Hong Kong Liner Shipping Association, responded that the shipping industry was a free market and market forces had led to a decline in overall shipping rates in the last ten years. He further remarked that Hong Kong shippers should negotiate with the importers on who should pay for THC.

Meeting with the Administration

15. The Secretary for Economic Services (SES) noted comments made by representatives of HKSC, and shipping lines and terminals operators. He said that the Administration was also concerned about the high level of THC and had held a number of meetings with representatives of HKSC, the shipping lines and terminal operators. The Administration would continue to work with parties concerned to identify measures to improve transparency and consultation between the shipping lines and shippers in the setting of THC.

16. Mr CHEUNG Man-kwong pointed out that as indicated in paragraph 4 of the Administration's information paper, the freight rates and THC set by the main liner conferences and rate discussion agreements were either binding on their member shipping lines or served as references for individual member shipping lines to negotiate the actual charges with their clients. He enquired whether this practice would constitute a price cartel, and if so, what action would be taken by the Administration to break the price cartel. The Deputy Secretary for Economic Service (DSES) advised that the setting of binding rates and recommended rates by liner conferences and rate discussion agreements was a trade practice applied globally with the objective of stabilizing shipping rates on a long term basis. However, not all shipping lines were members of liner conferences and rate discussion agreements, and hence, there was some competition in the market. While the freight rates and THC set by the liner conferences were binding on their members in theory, the actual rates paid by the shippers were often negotiated between the shippers and the shipping lines and reflected the demand and supply situation, due to intense competition in the international shipping market.

17. In regard to the substantial increase in THC in the last 10 years, SES remarked that although he agreed that the setting of THC was a commercial matter, the Administration was concerned that the continued increase in THC would erode Hong Kong's competitiveness. The Adminsitration had examined the option of regulating the setting of THC by legislation but considered this approach too drastic and would not be effective as judged from overseas experience. The Administration would seek to improve the transparency and hoped that shipping lines would consult shippers and provide more data in justifying increases of THC and give due notification before the implementation of any proposed increase.

18. Mr SIN Chung-kai was concerned that there might be a price cartel amongst terminal operators in Hong Kong and enquired whether the Administration would introduce legislation to prohibit such practice. DSES advised that there were four terminal operators in Hong Kong and shipping lines were free to choose among them. He did not consider that there was a price cartel amongst the terminal operators. He reiterated the Administration's concern about the high THC, which would erode Hong Kong's competitiveness as evidenced in the decrease in throughput volume in our container terminals in 1998. He urged the terminal operators to adopt a more transparent approach in setting THC. On the issue of legislation to prohibit price cartels, SES supplemented that the Competition Policy Advisory Group chaired by the Financial Secretary was monitoring issues on free market competition in different sectors of the economy. The Advisory Group held regular meetings and would deal with matters related to price cartels.

19. Mrs Miriam LAU opined that the main reason for high terminal handling charges in Hong Kong was that terminal operators had to pay very high land premiums to the Government and that unlike other ports in the region, Hong Kong's terminal operators received no Government subsidy. She enquired whether the Government would lower the land premium on back-up lands to be granted to terminal operators in future. SES replied that to address the problem of high terminal charges, the container handling capacity of the terminals had to be increased and Container Terminal No. 9 (CT9) with a throughput capacity of 2.6 million twenty-foot equivalent units per year should be able to achieve the objective. He further advised that the agreement on CT9 was signed on 8 December 1998 and the land premium concerned was lower than those of CT7 and CT8. As regards land premium for back-up lands, he said that a fair amount would be agreed upon after negotiation between the Lands Department and the terminal operators.

20. Ms CHAN Yuen-han enquired about immediate measures to lower THC, in addition to the long term measures mentioned in paragraph 10 of the Administration's information paper. SES responded that he would urge the shipping lines and the terminal operators to freeze or reduce THC as immediate measures to enhance Hong Kong's competitiveness.

21. In concluding the discussion, the Chairman said that the Administration should continue to explore with the shipping lines for more transparency in the setting of THC. As requested by the Chairman, SES agreed to brief members on progress on the issue after further discussions with relevant parties.Admin

VI Phase two development of the Cheung Sha Wan Wholesale Market Complex and the relocation of the fruit market in Yau Ma Tei to the Complex
(LC Paper No. CB(1)592/98-99(03) - information paper provided by the Administration)

22. The Assistant Director of Agriculture and Fisheries/Administration & Markets (AD of AF/AM) introduced the background and progress on phase two development of the Cheung Sha Wan Wholesale Market Complex (CSWWM2) and relocation of the fruit market in Yau Ma Tei to the Complex as set out in the information paper provided by the Administration. The Senior Architect of Architectural Services Department briefed members on the layout and design of the Complex as mentioned in paragraphs 5 and 6 of the Administration's information paper.

23. Mr James TO Kun-sun expressed deep regret about the ten-year delay in relocating the fruit market in Yau Ma Tei which had caused serious environmental nuisance to residents nearby. He enquired about the reasons for the delay. SES agreed that the delay was unsatisfactory. He further advised that the site intended for private development of the Complex was tendered out in 1997. However, the sole tender received departed materially from the tender conditions and had to be rejected. The Administration had therefore decided to implement the CSWWM2 project by itself. The Administration was confident that this would be the best solution to ensure early completion of the project and optimization of land use in the area concerned. Construction of the Complex would start pending completion of the relevant traffic impact assessment (TIA) study and environmental impact assessment (EIA) study. The Administration had also considered the possibility of phasing the development of the project with a view to speeding up the reprovisioning of the Yau Ma Tei Fruit Market but concluded that phased implementation was impractical. The construction of CSWWM2 was expected to be completed in 2004. A Steering Committee comprising representatives from the bureaux and departments concerned would be set up to closely monitor progress of the project.

24. Mrs Selina CHOW was concerned that the architectural design of CSWWM2 was completed prior to consultation with end-users of the wholesale market. She pointed out that the architectural design had to be conducive to efficient operation of end-users. Otherwise, objections to the design of the Complex from them would delay the whole project. In reply, the Director of Agriculture and Fisheries advised that the current architectural design was only preliminary and the Administration would consult end-users before finalizing the design. She emphasized that the consultation exercise would be conducted in parallel with the TIA and the EIA studies and would not therefore cause delay to the project. The Deputy Director of Architectural Services (DD of AS) supplemented that there had to be a preliminary architectural design before effective consultation could be made. In preparing the preliminary design, the Architectural Services Department (ASD) had taken into account experience gained from the design of phase one of the CSWWM. He was confident that the basic concept of the current design would be acceptable to end-users. The preliminary design would be refined taking into account views to be collected in the consultation exercise. He further advised that ASD was aware that the current fruit market was operating at ground level and reprovisioning the fruit market to an upper floor in a complex would certainly lead to some changes to the usual operational practice of the fruit traders. ASD would carefully consider the views of the fruit traders in fine-tuning the preliminary design of the Complex. As regards the timing of implementation of the project, he said that previous delays were mainly due to a change in development strategy necessitated by the lack of interest in the private sector in the development of the Complex. He was confident that the current target of completing the project in 2004 was achievable.

25. Mrs Selina CHOW opined that in consulting end-users of the Complex, the Administration had to adopt an open attitude and fully consider the views expressed by all interested parties before finalizing the architectural design. Ms CHAN Yuen-han echoed the views of Mrs Selina CHOW. SES noted members' comments and reiterated that the consultation exercise would be conducted in parallel with the TIA study and EIA study and should not cause undue delay to the project.

26. Noting that there could be as many as more than 100 trucks and lorries downloading different types of fresh food produce including fish, fruit and vegetable at the Complex during peak periods, Mr CHAN Kam-lam opined that the design of the Complex should be able to cope with the demand so generated without adversely affecting the traffic in the vicinity of the Complex. He further suggested that design of the future fruit market should also cater for easy access by members of the public purchasing small quantities of the produce. DD of AS noted Mr CHAN's suggestion.

27. In reply to Mr James TO's question, DD of AS advised that as the scope and design of the current CSWWM2 project differed from the original concept, the transport and EIA aspects of the project had to be examined again. As requested by Mr TO, SES agreed to brief the Panel on progress of the project at three-month intervals.Admin

VI Second Runway at the Hong Kong International Airport
(LC Paper No. CB(1)527/98-99(01) - information paper provided by the Administration)

28. Mr Howard YOUNG opined that since the air traffic volume at the new airport had not been as high as previously estimated, there should not be any problem to the airlines even if the opening date of the Second Runway was deferred by six to eight months. He agreed that it was important to accord priority in ensuring smooth and efficient operation of the Second Runway before putting it to use. He enquired whether the Administration had, during the interim, considered measures to reduce the waiting time for incoming and departing flights during peak hours from 1:00 pm to 4:00 pm. In response, SES advised that he was aware that aircraft might have to wait for some time before departing and landing during peak hours. The situation however should not be worse than that in Kai Tak because the air traffic capacity of the First Runway at Chek Lap Kok was 37 movements per hour, compared with 31 movements per hour in Kai Tak. He advised however that the Civil Aviation Department would explore with the Airport Authority (AA) on possible measures to further shorten the waiting time for incoming and departing flights during peak hours.

29. Referring to the Administration's information paper which indicated that "there had been several occassions when the First Runway Airfield Ground Lighting (AGL) system did not respond to the control from the Air Traffic Control (ATC) Tower", Mr CHEUNG Man-kwong expressed grave concern about the safety in the operation of the First Runway. He also expressed concern about the safety aspects in the Administration's proposal to use "the Second Runway for emergency where circumstances permit if the First Runway has to be closed for one reason or another." In response, the Director of Civil Aviation (DCA) advised that during the few occassions when the First Runway AGL did not respond to the control from the ATC Tower, the system was switched to manual control from control stations at the airfield. The safety and air traffic were not affected. As regard to the proposed use of the Second Runway for emergency purpose, he elaborated that the proposal was a contingency measure and the Second Runway would only be used if the First Runway was closed and that no AGL system would be required i.e. during daytime when there was sunlight. However, if there was a need to use the AGL system, CAD/AA would ensure that the systems would be in a state of readiness suitable for operational use.

30. Mr CHEUNG Man-kwong requested for more details on the handling of the incidents during which the AGL system did not respond to control from the ATC Tower. Mr Billy LAM, Acting Chief Executive Officer of Airport Authority, advised that when the staff manning the ATC Tower noticed that the AGL system did not respond to the control command, the staff concerned immediately communicated with staff manning the control stations at airfield by phone and gave control instructions which was immediately implemented manually on the spot by the control station staff. The manual back-up system had proven to be effective in the occasions. Dr Graham PLANT, Head of Engineering of Airport Authority, supplemented that as a safety mechanism, the lights for the runway were designed to remain switched on in case of a breakdown of communication between the airfield control stations and the ATC Tower. Subsequent investigations revealed that the incidents were caused by a failure of the network cards in the Fixed Communication System (FCS) which were found to have manufacturing faults. These cards had all been replaced.

31. Mr LEE Wing-tat queried why the faults in FCS could not be identified in the testing of the system. Dr PLANT advised that the FCS had undergone repeated testings before opening of the new airport. However the problem only surfaced when the system came into operation. Mr Billy LAM supplemented that the simulated operating conditions during testings could not be exactly the same as the actual live operating conditions and hence it was not surprising that some problems would surface only when the system became operational. He stressed that remedial and enhancement works had been implemented to address the problem.

32. Mr Martin LEE Chu-ming enquired about the reasons for the delay in opening the Second Runway. Mr LEE Wing-tat was dissatisfied that the Administration informed this Panel of the delay only in December 1998, after the originally scheduled opening date of the Second Runway in October 1998. SES advised that the Administration had intended to inform this Panel of the delay at the Panel meeting in November but the subject was deferred as there was insufficient time at the meeting in November to consider the subject. He stressed that the delay should not incur any economic loss as the capacity of the First Runway was sufficient to cater for the current volume of air traffic at the new airport. He considered it imperative to ensure that enhancement works for the AGL system of the Second Runway was carried out and fully tested before opening. The Deputy Secretary for Economic Services /Economic Services 2 supplemented that the opening of the Second Runway was re-scheduled for the second half of 1999.

33. As regards reasons for the delay in opening of the Second Runway, Mr Billy LAM advised that additional time was required for carrying out enhancement works related to the AGL System which included the installation of a separate dedicated communication network for the AGL System and installation of the Manual Backup Control System as an additional safety mechanism. In reply to Mr CHAN Kam-lam's question, he further explained that the control functions of the AGL would be put on a dedicated network separate from the FCS which carried signals from other AA computerized system in a common network. The enhancement works would cost about $64 million. The delay in opening of the Second Runway would not have adverse impacts on AA's revenue in 1999 because the capacity of the First Runway was sufficient to handle additional flights at the current volume of air traffic.

VII Staff changes for the senior management of the Airport Authority
(LC Paper No. CB(1)592/98-99(04) - information paper provided by the Airport Authority)

34. Introducing the information paper provided by AA, Mr Billy LAM advised that the Authority recognized the need for organizational changes as the prime function of the Authority had shifted from planning and construction of the new airport to airport operations. Since some members of the senior management team had indicated their intention to leave the Authority once the airport was open, the opportunity was taken to restructure the senior management of the Authority to achieve greater efficiency and cost reduction.

35. Noting the reduced air traffic volume, Mr CHEUNG Man-kwong enquired whether a decrease in AA's revenue would lead to staff lay-offs which would have impact on staff morale. Mr Billy LAM advised that AA had no immediate plans to lay-off staff. The recent personnel movements in the senior management of AA primarily reflected the anticipated organizational change in the Authority. Some staff members whose work was directly related to construction of the new airport would have to leave the Authority after the opening of the airport and this arrangement had been planned and accepted by the staff members concerned. The management of the Authority would explain the arrangements to all staff to avoid any misunderstanding. He believed that there should be no serious adverse impacts on staff morale.

36. Mr CHEUNG Man-kwong noted that under the employment contract between AA and its former Chief Executive Officer, the latter was entitled to his full amount of gratuity after completion of contract irrespective of his performance during the term of the contract. He enquired whether gratuity provisions under the employment contracts of other senior staff of AA were the same as those of the former Chief Executive Officer. Miss Sophia KAO, Human Resources Director of Airport Authority, replied that as a general principle, gratuity was part of the salary of the staff concerned and the payment of gratuity should not be linked to the performance of the staff. She further advised that provisions related to gratuity under employment contracts of staff of AA, other than the one tailor-made for the former Chief Executive Officer, had provided that all benefits including gratuity would be forfeited if the staff member concerned was dismissed as a result of disciplinary action. The conditions for taking disciplinary actions were stipulated in the contract.

37. Mr CHEUNG Man-kwong queried whether a staff member of AA would be subject to disciplinary action if the Legislative Council's New Airport Inquiry found that the staff member concerned was to bear responsibility in the incident. Mr Billy LAM replied that each case would have to be considered on its own merits and other legal and contractual implications but provisions on disciplinary actions were present in the employment contracts.

38. Mr Howard YOUNG commented that the restructuring of AA was considered rational having regard to the changes in the function of AA after opening of the new airport. He wondered whether there would be similar changes to the composition of the Board of AA. SES advised that the Chief Executive (CE) of the Hong Kong Special Administrative Region had recently announced that current members of the Board of the AA were re-appointed for six months. The Administration would take into account organizational changes of the AA before recommending future membership of the Board to CE for consideration.

39. In reply to the Chairman's question, Mr Billy LAM confirmed that the number of staff of AA involved in operation of the new airport was more than the number of staff involved in operation of the Kai Tak Airport mainly because of a completely new environment and the larger size of the new airport. However, there was no substantial increase in management staff as compared with those involved in management of Kai Tak Airport.

40. Mr CHAN Kam-lam noted that the new airport would be operated in accordance with commercial principles and wondered what would be the impact of this management philosophy on the size of the organization and the remuneration and benefits of the staff of AA, as compared with those of Civil Aviation Department and the Kai Tak Airport. Mr Billy LAM said that it would be difficult to compare remuneration packages of staff in the AA and those of the civil service. However, taking all factors into account, the overall level of remuneration and benefits should be more or less the same. SES echoed Mr LAM's view. As requested by Mr CHAN, SES agreed to provide organization charts of the AA showing the senior management structure and those of CAD showing the personnel structures involved in the management of the new airport and Kai Tak Airport respectively.Admin

41. Mr Martin LEE Chu-ming commented that from his own personal experience in using the airport recently, the airport's passenger traffic had been operating very smoothly. This was due to the hard work of everyone concerned.

III Any other business

42. There being no other business, the meeting ended at 11:30 am.

Legislative Council Secretariat
23 February 1999