FINANCE COMMITTEE

Minutes of the proceedings of the Meeting held on
21 June 1996 at 2:30 p.m. in the Legislative Council Chamber

Members Present :

Members Absent :

Public Officers Attending :

Mr Clement LEUNG	Principal Assistant Secretary for Security
Mr C B CLUER	Controller, Government Flying Service
Mr G M MCINTOSH	Chief Aircraft Engineer, Government Flying Service
Miss Sandy P S CHAN	Principal Assistant Secretary for Housing
Mr Victor H W SO, JP	Executive Director, Hong Kong Housing Society
Mr Ambrose S K LAM	Director (Finance and Administration), Hong Kong Housing Society
Mr Patrick NIP	Principal Assistant Secretary for Trade and Industry
Mr Stephen SELBY, JP	Director of Intellectual Property
Mr Daniel LAM	Chief Systems Manager of Information Technology Services Department
Mr Leo KWAN, JP	Deputy Secretary for Economic Services
Mrs Amy CHAN	Executive Director, Hong Kong Tourist Association
Mr Kent HAYDEN-SADLER	Deputy Executive Director, Hong Kong Tourist Association

In Attendance :

Mr Kevin HO, JP	Deputy Secretary for the Treasury
Mrs Lilian WONG	Principal Executive Officer (General), Finance Branch
Miss Pauline NG	Clerk to the Finance Committee
Mrs Constance LI	Chief Assistant Secretary (Finance Committee)
Mr Andy LAU	Senior Assistant Secretary (Finance Committee)

Item No. 1 - FCR(96-97)21

RECOMMENDATIONS OF THE PUBLIC WORKS SUBCOMMITTEE ON NON-AIRPORT CORE PROGRAMME MADE ON 4 JUNE 1996

The Committee approved the proposal.

Item No. 2 - FCR(96-97)22

RECOMMENDATION OF THE PUBLIC WORKS SUBCOMMITTEE ON NON-AIRPORT CORE PROGRAMME MADE ON 12 JUNE 1996 IN RESPECT OF GOVERNMENT FACILITIES FOR THE SECOND RUNWAY OF THE NEW AIRPORT AT CHEK LAP KOK (PWSC(96-97)19)

2. The Chairman advised that following the Public Works Subcommittee meeting on 12 June 1996, the Administration had briefed members on 19 June about the financial and tendering arrangements of the second runway of the new airport, and had provided further information in this respect.

3. The Committee approved the proposal.

Item No. 3 - FCR(96-97)25

CAPITAL WORKS RESERVE FUND
HEAD 708 - CAPITAL SUBVENTIONS AND MAJOR SYSTEMS AND EQUIPMENT
Government Flying Service
New Subhead Installation of a loudhailer system in helicopters

4. In response to a members question on the effectiveness of the proposed loudhailer system, the Controller, Government Flying Service (C/GFS) advised that the proposed system was the best available system for use on helicopters. The proposed system would greatly facilitate the on-scene commander or the crew on helicopters to give instructions to people on the ground during search and rescue operations.

5. On procurement arrangements, some members expressed concern on the proposal to engage the manufacturer of the helicopters in service for providing the technical support and for supplying the equipment instead of going through the normal open tender procedures. In reply, C/GFS explained that the proposed modifications would need to integrate with the existing inter-communication systems already installed on the helicopters, and the manufacturer of the aircraft would be asked to install and certify the first set of loudhailer system and transfer the technology to GFS staff afterwards. Whilst accepting that the design and certification portion of the installation work should preferably be done by the manufacturer, members remained unconvinced that the equipment, namely amplifiers, control and switch panels, cassette players, etc. should also be supplied by the manufacturer. Members therefore questioned the rationale for waiving the normal tendering procedures for the supply of such equipment. In response, the Deputy Secretary for the Treasury (DS/Tsy) explained that open tender procedures would be followed unless there were exceptional circumstances such as to meet specific safety standards and time constraints. C/GFS confirmed that in the present proposal he was prepared to consider members suggestion of going for open tender, particularly on the procurement of equipment for the systems, but he cautioned that the installation process might be slowed down as a result.

6. The proposal was voted on and approved.

Item No. 4 - FCR(96-97)26

LOAN FUND
HEAD 251 - HOUSING
Hong Kong Housing Society
Subhead 114 Sandwich class housing

7. Members expressed dissatisfaction that the Administration had not followed the procedures that any major financial proposal with policy implications should first be discussed by the relevant Panel, prior to submission to the Finance Committee (FC). In response, the Principal Assistant Secretary for Housing explained that the Sandwich Class Housing (SCH) scheme which aimed to provide home purchase assistance to middle-income families, had been well received by the community since its implementation and the terms of the proposed loan were basically the same as the previous loan approved by FC on 8 July 1994. The Administration therefore had not referred the matter to the Panel for discussion.

8. On the justifications for providing further loans to the Hong Kong Housing Society (HKHS), some members noted that HKHS would start accumulating surplus in cashflow by mid-1997 and the surplus would amount to about $11.463 billion by the year 2000. As there was no indication in the paper as to how repayment of the loan was going to be made, members questioned if there would be scope for the loan to be used for purposes other than land premia.

9. In response, the Administration advised that even with the $7 billion loan from the Government, HKHS would still have to raise another $5.2 billion from the market to meet the total cost of $19.3 billion ($7.1 billion for land premia and $12.2 billion for the construction and development costs) for the second batch of 10,000 SCH flats. As set out in paragraph 3 of the paper, it had been proposed that HKHS should repay Government an amount not less than 10% of the loan advanced in each tranche after the pre-sale of the flats on the relevant site. The final repayment should include both the principal and interest of the loan advanced. As the Phase I SCH flats in Ma On Shan had just been pre-sold, repayment of the loan would commence soon. The Executive Director of HKHS added that it was not possible to advance the repayment timetable even though HKHS would start having a surplus in cashflow by mid-1997 as it required funds to finance the development costs for Phase II SCH flats. DS/Tsy assured members that the proposed loan from the Government would solely be used for paying the land premia. HKHS ought to raise its own funds to cover other expenses.

10. In response to members questions, the Administration and the Executive Director of HKHS provided the following information :

The interest rate at 5% per annum was the same rate charged on the previous loan to HKHS. As to why the interest rate was lower than that charged on some other Government loans, it had been Government policy to assist middle-income families to purchase their own homes and a concessionary interest rate was therefore offered to HKHS for the implementation of the SCH scheme.
The HKHS normally fixed the prices of SCH flats at roughly 70% of the market prices, having regard to the production costs, the quality of flats, their locations and affordability of applicants. As HKHS was a non-profit making organisation, any revenue derived from the SCH scheme would be used in connection with SCH flats or ploughed back to further housing projects for the benefit of the community.

11. Members expressed doubts that HKHS might hold on to the Government loans for an unduly long period in order to finance other projects, and urged the Administration and HKHS to provide further information on the intended use of the anticipated surplus of HKHS, and details of the repayment plan. Concerning that HKHS might be operating at unreasonably high profits, members requested that HKHS should provide further information on its pricing strategy for SCH flats, and details of the Phase I projects which had already been completed for members reference.

12. On the declaration of interest mechanism for the committee members of HKHS, the Administration advised that the companies of the Chairman of the Executive Committee and its sub-committees of HKHS were not allowed to have direct business dealings with HKHS projects. Meanwhile the Administration would, together with HKHS, continue to work out measures to further improve the transparency and accountability of HKHS.

13. In view of members questions on the proposal, the Chairman requested that the subject, in particular the repayment mechanism, should first be deliberated at the Housing Panel. The Administration agreed to withdraw the proposal to enable the subject to be further discussed by the Panel.

Item No. 5 - FCR(96-97)23

CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Intellectual Property Department
New Subhead Computerisation of the Patent Registration System
HEAD 78 - INTELLECTUAL PROPERTY DEPARTMENT
Subhead 001 Salaries

14. Members noted that the design of the computer system as proposed in the paper would meet the requirement of the application and procedures set out in the Patents Bill which was yet to be introduced to the Legislative Council. Members therefore questioned if the rejection of the Bill and any amendments to the original Bill would render the development work of the computer system abortive. Members also asked if it was more appropriate to consider the funding proposal after the Patents Bill had been passed.

15. In response, the Principal Assistant Secretary for Trade and Industry (PAS/TI) advised that the proposed system was mainly to replace the existing manual system to cope with the changes brought about by the change of sovereignty in 1997. Since the current patent law in Hong Kong was dependent on United Kingdom (UK) patent law and all existing patent registration records affecting Hong Kong were now maintained in the UK, it would be necessary to transfer all such records to Hong Kong before July 1997, and a new local Patents Ordinance be enacted to ensure continuity in the protection of inventions after the change of sovereignty. As the development of the proposed computer system including data conversion and system modifications would take about 138 man-months to complete, it would be necessary to seek funding approval well in advance to ensure that the computerised patent registration system could be in operation by July 1997. The Director of Intellectual Property (DIP) advised that the computer system would meet the requirements of the application and registration procedures as set out in the new Patents Bill, but since the procedures were in line with international standards, he did not envisage that any technical amendments to the Bill would result in substantial modifications to the computer design.

16. On the contingency measures in the event that the proposal was not approved, DIP advised that the computerised project would be delayed, and the department would have to resort to a manual system of transferring a total of 20,000 registration records from the UK to Hong Kong, which would be a time-consuming and expensive approach.

17. Members agreed that there was a need to introduce a computerised patent registration system in view of the changeover in 1997, but questioned the propriety of giving funding approval ahead of the enactment of the legislation which might require detailed examination by the Legislative Council. Members considered that if the proposed computer system was in fact required to continue Hong Kongs registration and legal protection of patents up to and beyond 1997, the discussion paper should be modified to accurately reflect the purpose of the proposal.

18. In view of members comments, the Administration agreed to withdraw the paper and to submit a modified proposal to FC as soon as possible.

19. The proposal was withdrawn by the Administration.

Item No. 6 - FCR(96-97)24

HEAD 177 - SUBVENTIONS : NON-DEPARTMENTAL PUBLIC BODIES
New Capital Account Subhead Tourism Development Fund

20. Members were generally in support of the proposal. In response to a members question, the Executive Director of the Hong Kong Tourist Association (ED/HKTA) advised that the proposed studies would be carried out by outside consultants to be engaged through open tender. While preference would be given to consultants based in Hong Kong, it would also be important to make reference to overseas experience in these projects. She also took note of a members suggestion to consult the District Boards concerned and the service industries in the course of the studies.

21. On the benefits of the proposed feasibility studies, ED/HKTA advised that it would be difficult to forecast a tourist growth rate as a direct result of these studies, but Hong Kong would definitely need to provide new tourist attractions in order to upkeep its position as a major tourism destination to overseas visitors and to maintain an annual growth rate currently at 8%-11% for the tourism industry.

22. Responding to a members question, the Deputy Secretary for Economic Services advised that the proposed investment projects and improvements would be financed by the private sector, but the Administration would support in the form of infra-structural developments where justified. In response to a member, ED/HKTA advised that the proposed facilities would not only benefit the overseas visitors, but also local residents of Hong Kong. The projects and facilities included in the paper were only preliminary ideas to be covered by the feasibility studies, and other initiatives from interested parties would be welcomed. Responding to a member, ED/HKTA advised that while the studies aimed at exploring the feasibility of opening up more natural scenic spots for visitors, consideration should also be given to how far such development would affect the natural environment of the area, and the availability of transport and carpark facilities.

23. The Committee approved the proposal.

24. The Committee was adjourned at 4:30 p.m.

Legislative Council Secretariat
19 July 1996

Last Updated on 27 November 1998

FINANCE COMMITTEE

Minutes of the proceedings of the Meeting held on 21 June 1996 at 2:30 p.m. in the Legislative Council Chamber

Minutes of the proceedings of the Meeting held on
21 June 1996 at 2:30 p.m. in the Legislative Council Chamber