Legislative Council

LC Paper No. LS2/99-00

Paper for the House Committee Meeting
of the Legislative Council
on 15 October 1999

Legal Service Division Report on
Mass Transit Railway Bill

Object(s) of the Bill

This Bill provides for-

  1. the grant of a franchise to the MTR Corporation Limited ("the Corporation") to operate the Mass Transit Railway;

  2. the regulation of the operation of the railway under the franchise; and

  3. the vesting in the Corporation of the whole of the property, rights and liabilities of the Mass Transit Railway Corporation ("MTRC").

LegCo Brief Reference

2. TBCR 1/1017/99 dated 24 September 1999 issued by the Transport Bureau.

Date of First Reading

3. 13 October 1999.


4. At present, the Mass Transit Railway is operated by MTRC, a statutory corporation established by the Mass Transit Railway Corporation Ordinance (Cap. 270). MTRC is wholly owned by the Government.

5. The Bill seeks to provide a legal framework for the privatisation of MTRC. The Bill adopts some of the provisions in existing legislation, with certain variations, under which franchises are granted to private companies to operate ferry services, public bus services and certain tunnels. Part IX of the Bill, which deals with vesting of property and transitional arrangements, contains provisions similar to those in certain privatisation legislation in the United Kingdom such as the British Steel Act 1988 and the Railways Act 1993. The Bill also preserves certain provisions of the existing Cap. 270 which relate to railway safety, transport interchanges and the making of regulations and bylaws to regulate the operation of the railway. Certain regulations and bylaws made under Cap. 270, after some modifications, are proposed to be adopted as and become regulations and bylaws made under the Bill.

6. The Bill proposes to repeal the Mass Transit Railway Corporation Ordinance and transfer all the property, rights and liabilities of MTRC to a new body corporate known as the MTR Corporation Limited. The new body corporate will be a public limited company incorporated under the Companies Ordinance (Cap. 32). Under the Bill, the Corporation will issue shares to the Financial Secretary Incorporated. Such shares will be held by the Financial Secretary Incorporated in trust on behalf of the Government. According to the LegCo Brief, the Government intends to hold not less than 51% of the shares of the Corporation.

7. The Bill will grant to the Corporation an exclusive franchise for a period of 50 years to operate the MTR and to construct any extension to the railway. The terms and conditions of the franchise will be set out in an operating agreement entered into between the Government and the Corporation. According to the LegCo Brief, the operating agreement will provide for all the detailed terms of the franchise, including the monitoring process by the Government and fare setting mechanism by the Corporation. The franchise period may be further extended by the Chief Executive in Council.

8. The Bill also provides for the obligations of the Corporation under the franchise. The obligations to be imposed include the maintenance of a proper and efficient service at all times during the franchise period; provision of information and records as may be required by the Secretary for Transport ("the Secretary"); compliance with directions given by the Chief Executive in Council in relation to matters concerning the franchise and carrying out works in connection with the safety of the railway as required by the Secretary.

9. If there is any failure by the Corporation to comply with any provision of the Bill or the operating agreement, the Chief Executive in Council may impose financial penalties or revoke the franchise depending on the seriousness of the breach.

10. The Bill does not contain any provision relating to fare regulation. At present, MTRC is empowered under the Mass Transit Railway Corporation Ordinance to determine its own fares. The Administration considers it important that after privatisation, MTRC should continue to retain fare autonomy which will enable it to invest in the development and maintenance of the railway system. According to the LegCo Brief, the Government will continue to play an important role after privatisation of the MTRC in promoting healthy competition between the MTR and other modes of public transport so as to ensure that market forces act as a constraint on fare increases.

11. The consequential amendments to various Ordinances as a result of privatisation are contained in Schedule 6 to the Bill.

12. If enacted, the Bill will come into operation on a day to be appointed by the Secretary for Transport by notice in the Gazette. According to the LegCo Brief, the Administration prefers that the Initial Public Offering of the shares of the Corporation should take place in 2000-01.

Public Consultation

13. The Transport Advisory Committee has been consulted on the privatisation of MTRC on 22 June 1999.

Consultation with the LegCo Panel

14. The Administration briefed the joint meeting of the Panel on Transport and Panel on Financial Affairs on the privatisation of MTRC on 4 October 1999. At the meeting, some members expressed support for privatisation while some expressed concern over various matters such as the duration of the franchise, fare control mechanism, etc.


15. The proposed privatisation of MTRC has generated considerable attention and debate. We are seeking clarification from the Administration on the legal and drafting aspects of the Bill. Meanwhile, Members may wish to set up a Bills Committee to consider the policy aspects of the Bill in detail.

Prepared by

FUNG Sau-kuen, Connie
Assistant Legal Adviser
Legislative Council Secretariat
11 October 1999