LegCo Paper No. CB(1) 1720/96-97
(These minutes have been seen
by the Administration)
Ref : CB1/BC/56/95/2

Bills Committee on Mass Transit Railway Corporation (Amendment) Bill 1996 and Kowloon-Canton Railway Corporation (Amendment) Bill 1996

Minutes of meeting held on Wednesday, 23 April 1997, at 8:30 a.m. in Conference Room A of the Legislative Council Building

Members present:

    Hon Zachary WONG Wai-yin (Chairman)
    Hon Edward S T HO, OBE, JP
    Hon Mrs Miriam LAU Kin-yee, OBE, JP
    Dr Hon Samuel WONG Ping-wai, OBE, FEng, JP
    Hon CHAN Kam-lam
    Hon CHAN Wing-chan
    Hon CHAN Yuen-han
    Hon Ambrose LAU Hon-chuen, JP
    Dr Hon LAW Cheung-kwok
    Hon NGAN Kam-chuen
    Hon SIN Chung-kai
    Hon TSANG Kin-shing

Members absent:

    Hon Ronald ARCULLI, OBE, JP
    Hon LEE Wing-tat
    Hon Paul CHENG Ming-fun
    Hon LAU Chin-shek
    Hon LEUNG Yiu-chung
    Hon Bruce LIU Sing-lee

Public officers attending:

    Transport Branch

    Mr Isaac Y N CHOW,
    Deputy Secretary for Transport

    Mr LAU Kwok-choi,
    Principal Assistant Secretary for Transport

    Mr Alan Kiepper,
    Former President of New York City Transit

    Mass Transit Railway Corporation

    Mr Jack C K SO, OBE, JP,
    Chairman and Chief Executive

    Mr Bill Donald,
    Operations Director

    Mr Clement KWOK,
    Finance Director

    Mrs Miranda LEUNG,
    Corporate Relations Manager

    Ms Maggie SO,
    External Affairs Manager

    Kowloon-Canton Railway Corporation

    Mr Samuel LAI, Director,
    East Rail

    Mr C K YEUNG,
    Acting General Manager - Corporate Affairs

Clerk in attendance:

    Miss Polly YEUNG,
    Chief Assistant Secretary (1)3

Staff in attendance:

    Mr Stephen LAM,
    Assistant Legal Adviser 4

    Mr Matthew LOO,
    Senior Assistant Secretary (1)4 (Atg)

I.Confirmation of minutes of previous meeting

(LegCo Paper No. CB(1) 1334/96-97)

The minutes of meeting held on 5 March 1997 were confirmed.

II.Meeting with Mr Alan Kiepper, former President of New York City Transit

2. The Chairman, on behalf of the Bills Committee, welcomed Mr Alan Kiepper to the meeting. On the proposal for future fare increases by railway operators to be subject to approval by the Legislative Council, Mr Kiepper pointed out that political pressure to keep fares down had been detrimental to the New York Subway. The inaugural fare of five cents per ride had been maintained for 44 years due to political interference. Although the Metropolitan Transportation Authority (MTA) had been vested with the exclusive right to set fares, MTA was still reluctant to increase fares to a reasonable economic level until the late 1970’s when the system almost collapsed. He pointed out that control of fares by elected legislators as proposed under the Bills was undesirable and it would be unwise for legislators to take on a responsibility which had been delegated and apparently carried out in a responsible manner. In his view, there were other effective ways for the legislature to monitor services provided by railway operators. He therefore urged that the railway operators should retain their fare setting autonomy and be held accountable for their performance.

(Post-meeting note : Mr Kiepper’s statement was circulated to members vide LegCo Paper No. CB(1) 1384/96-97.)

3. Some members were concerned about the level of deterioration in the subway system in New York City after the suppression of fare increases for 44 years. They also enquired if the subway system had improved significantly after the MTA had been authorized to set fares in 1968. In response, Mr Kiepper advised that a railway system could be operated without maintenance for a fairly long period of time as problems would develop insidiously. As a result of neglected maintenance, there were about 600 locations in the subway system by 1980 where the track was in such a poor condition that trains had to slow down to 10 miles or less per hour. After instituting a major rebuilding program in the 1980’s costing over US$20 billion, the system had attained an acceptable level of operational efficiency; the progress of improvement was very slow before this program. Nevertheless, it was estimated that an additional US$20 billion would be required to put the system in a state of good repair; and US$4 to 5 billion a year was required to provide the necessary preventive maintenance and replacement. Mr Kiepper said that some citizens in New York had recognized the need of proper maintenance for the system and supported a reasonable fare increase in return for improved services.

4. In response to members, Mr Kiepper informed the meeting that the rebuilding program was funded mainly by issuing State and MTA bonds, and by Government appropriations. It was not viable to rely on MTA’s bonds exclusively as the fund required for the rehabilitation was significant. He also advised that the interests payable for the bonds were borne by the MTA and this would inevitably result in pressure for fare increases. He pointed out that the subway system had a complex financial structure whereby the operating costs were met by Government subsidy and Federal funds. Notwithstanding, MTA was seeking to meet its operating expenditure from its own income and the fares would have to be escalated substantially if in future, all its capitals were to be derived from fare-based income. In addition, Mr Kiepper pointed out that the subway system had achieved a sound fiscal condition in the initial years of operation in the early 1900s because of the rapid growth of New York and the absence of alternative means of transport at that time. Deficits were incurred when other modes of transport such as buses competed for commuters. He also clarified that when it was first established, the subway system was operated by a private corporation while infrastructures such as tunnels were financed by the Government. This mode of co-operation was not unlike the system subsequently adopted by Singapore.

5. On the membership of the management board of the MTA, Mr Kiepper clarified that board members of the MTA were appointed by the Government of New York City which was made up of elected officials. In response to a member, he explained that although the MTA’s recommendation on the level of fare increases was based mainly on commercial considerations, it was impossible to eliminate sensitive political factors in the process, particularly because there was a high proportion of relatively low-income earners in New York City. Mr Kiepper pointed out specifically that the current flat-fare structure of the subway was unfair and was being reviewed by the MTA.

6. A member referred to the statutory requirement for the MTRC and the Kowloon-Canton Railway Corporation to operate in accordance with prudent commercial principles and for the Government had to compensate the two Corporations from the general revenue for losses incurred if it required them to deviate from this direction. He cautioned that under such circumstances, the taxpayers at large, not the commuters, would be financing the railway services. His concern was shared by Mr Kiepper who also stressed that a change in the fare setting mechanism would have adverse psychological effects on the management of the Corporations; it would curtail their sense of responsibility and dampen their incentive for improvements. In this connection, Mr Jack SO pointed out that the commercial viability of the MTRC would deteriorate if it lost control over its level of fares.

7. Members considered that deferred maintenance as in the case of New York would be catastrophic for Hong Kong due to the importance of the railways services. Mr Clement KWOK supplemented that $12 billion had been earmarked for the capital investment of the MTRC including system maintenance in the next five years and this amount would be met by future fare revenue. Mr Bill Donald advised that apart from ongoing projects, the MTRC would embark on new projects such as major improvement works at certain stations to cope with increasing passenger capacity.

8. Some members were not convinced that the autonomy to set fares was the only determinative for the success of the two Corporations in the provision of railways services in Hong Kong. They considered that sustained efforts to improve management was equally important. A member particularly pointed out that even with the frozen fare increase in 1996, the annual revenue of the MTRC was still higher than that of the previous year. In this connection, Mr Kiepper advised that it might be inappropriate to draw a comparison on a year-to-year basis. The MTRC had been in a very satisfactory fiscal condition and the Government could even be paid dividends. He emphasized that "responsibility" and "authority" should match each other and it was therefore inadvisable to remove from MTRC the right to adjust fares but at the same time require it to meet high service demands. In response to a member’s comments on high fares, Mr SO clarified that fares of the MTRC were not high by international standard, and the rates of increase were the lowest in comparison with those of other transport services in Hong Kong.

9. Referring to Mr Kiepper’s observation that elected officials would face pressure if they were responsible for fare setting, a member enquired if these officials would side with the public rather than make a fair and independent judgment. Mr Kiepper affirmed the concerns. On the fare revision mechanism, he advised members that prior to each fare increase of the New York Subway, public hearings would be held. The views of the public would then be considered by the MTA board in determining the fare increases. He opined that there were other ways to oversee the railway system such as by developing a set of performance criteria up to generally accepted international standards and requiring the operators to submit regular reports.

III.General discussion

(LegCo Paper No. CB(1) 1087/96-97 -- Speaking note provided by Hon SIN Chung-kai for the meeting on 5 March 1997;

LegCo Paper No. CB(1) 1137/96-97 -- Responses from Mass Transit Railway Corporation and Kowloon-Canton Railway Corporation to CB(1) 1087/96-97;

LegCo Paper No. CB(10 1167/96-97 -- Responses from the Administration to CB(1) 1087/96-97;

LegCo Paper No. CB(1) 1321/96-97 -- Responses from Mass Transit Railway Corporation and Kowloon-Canton Railway Corporation to members’ concerns raised at the meeting on 5 March 1997; and

Written responses of Hon SIN Chung-kai tabled at the meeting and subsequently issued vide LegCo Paper No. CB(1) 1384/96-97)

10. The Chairman informed the Committee that the report of the delegation of the Transport Panel to study mass transit systems in overseas cities had been issued to members vide LegCo Paper No. CB(1) 1350/96-97.

11.In response to Mr SIN’s enquiry, Mr Donald explained that "Affordability - Fare Revenue per km (ECU currency)" specified in the international benchmarking study provided by MTRC represented the calculation for the revenue derived from one passenger per km. The MTRC undertook to provide further information on this subject after the meeting. MTRC

12. At the Chairman’s invitation, Mr SO reiterated MTRC’s stance on the Bills. He referred to past presentations by experts which had shed light on the adverse consequences of the Bills on the Corporations. The remarkable credit rating achieved by MTRC in the international capital market would also be jeopardized, thus resulting in higher borrowing costs and greater pressure for fare increases. In the long run, the Government might be required to inject funds to maintain the system. He also noted from the findings of the delegation that parliamentary involvement in the fare-setting process was not common and that most overseas systems had to rely on Government subsidies to remain viable. He also drew members’ attention to the world-wide trend of following the "user-pays" principle and of de-regulation of public transport services. As regards Mr SIN’s suggestion for the Government to act as lender or guarantor of the railway operators, Mr SO opined that this form of Government involvement was a clear departure from the prudent commercial principles underpinning the governing Ordinances of the two Corporations.

13. Mr SIN was of the view that the Government of Hong Kong was not elected and the general public was unable to monitor the operation of the railway services. Hence, the involvement of LegCo was necessary. Another member did not share Mr SIN’s view and referred to overseas experience such as London and New York where control by elected officials and political influences had hampered the development of railway systems. The Deputy Secretary for Transport (DS for T) also advised that the Administration had monitored closely public transport services in Hong Kong and was responsive to the requests of LegCo Members. Moreover, consultation with members of the three-tier systems of the representative government was undertaken before decisions on major issues were made.

14. On the drafting of the Bills, the Assistant Legal Adviser 4 advised that the Bills were basically in order but he had proposed some technical amendments for refining some wordings. Mr SIN said that he was considering these proposed amendments and confirmed that he would give notice to resume the Second Reading debate of the Bills in late May 1997.

15. In response to Mr SO’s enquiry about the "charging effect" of the Bills, DS for T advised that the Administration was of the view that the Bills would have a "charging effect", but this was subsequently overruled by the President of LegCo. To address members’ concerns, the Chairman said that the President’s ruling on the Bills would be circulated to the Committee for reference.CAS(1)3

(Post-meeting note : The President’s ruling was circulated to members vide LegCo Paper No. CB(1) 1391/96-97.)

16. At a member’s suggestion, the Bills were put to vote. The majority of members present indicated that they would not support the Bills. Nevertheless, members agreed that scrutiny of the Bills was completed and the deliberations of the Committee would be reported to the House Committee.

IV.Any other business

17. There being no other business, the meeting ended at 10:30 a.m.

Legislative Council Secretariat

28 May 1997

Last Updated on 16 December 1998