PLC Paper No. FC 86
(These minutes have been
seen by the Administration)

Ref : CB1/F/1/2

Members present :

Hon Henry WU (Deputy Chairman)
Hon WONG Siu-yee
Hon James TIEN Pei-chun, JP
Hon HO Sai-chu, JP
Hon Edward HO Sing-tin, JP
Dr Hon Raymond HO Chung-tai, JP
Prof Hon NG Ching-fai
Hon Eric LI Ka-cheung, JP
Hon LEE Kai-ming
Hon Allen LEE, JP
Hon Mrs Elsie TU, GBM
Hon Mrs Selina CHOW, JP
Hon Mrs Peggy LAM, JP
Hon NGAI Shiu-kit, JP
Hon Henry TANG Ying-yen, JP
Hon YUEN Mo
Hon MA Fung-kwok
Dr Hon Mrs TSO WONG Man-yin
Dr Hon LEONG Che-hung, JP
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon CHAN Choi-hi
Hon CHAN Yuen-han
Hon CHAN Wing-chan
Hon CHAN Kam-lam
Hon CHENG Kai-nam
Hon Frederick FUNG Kin-kee
Hon Andrew WONG Wang-fat, JP
Hon Kennedy WONG Ying-ho
Hon Howard YOUNG, JP
Dr Hon Charles YEUNG Chun-kam
Hon YEUNG Yiu-chung
Hon IP Kwok-him
Hon LAU Kong-wah
Hon Ambrose LAU Hon-chuen, JP
Hon CHENG Yiu-tong
Hon Timothy FOK Tsun-ting
Hon KAN Fook-yee
Hon LO Suk-ching
Dr Hon LAW Cheung-kwok
Hon TAM Yiu-chung, JP
Hon CHOY So-yuk

Members absent :

Hon Ronald ARCULLI, JP (Chairman)
Hon David CHU Yu-lin
Hon NG Leung-sing
Dr Hon David LI Kwok-po, JP
Hon CHEUNG Hon-chung
Hon LEUNG Chun-ying, JP
Hon MOK Ying-fan
Hon HUI Yin-fat, JP
Hon TSANG Yok-sing
Dr Hon Philip WONG Yu-hong
Hon CHIM Pui-chung
Hon Bruce LIU Sing-lee
Hon LAU Wong-fat, JP
Hon Mrs Miriam LAU Kin-yee, JP
Hon CHOY Kan-pui, JP
Hon Paul CHENG Ming-fun, JP
Dr Hon TANG Siu-tong, JP
Hon NGAN Kam-chuen

Public officers attending :

Mr K C KWONG, JP

Secretary for the Treasury

Mrs Carrie LAM, JP

Deputy Secretary for the Treasury

Mr K K LAM

Principal Executive Officer (General), Finance Bureau

Mr H S KWONG, JP

Secretary for Works

Mr K K KWOK, JP

Deputy Secretary for Works

Mr John COLLIER, JP

Director of Drainage Services

Mr Danny TSUI

Principal Assistant Secretary for Planning, Environment and Lands

Dr Malcolm BROOM

Principal Environmental Protection Officer

Mr Colin REDSTON

Principal Assistant Secretary for the Civil Service (1)

Mr WONG Chun-shiu, JP

Deputy Commissioner of Rating and Valuation

Mr Patrick PANG

Principal Assistant Secretary for the Civil Service (2)

Mr Gregory LEUNG, JP

Deputy Secretary for Health and Welfare

Dr E K YEOH, JP

Chief Executive of Hospital Authority

Mr Andy LEE

Deputy Director (Finance) of Hospital Authority

Mr Joseph WONG, JP

Secretary for Education and Manpower

Mr Raymond YOUNG

Deputy Secretary for Education and Manpower

Mr S A A GAFOOR

Principal Assistant Secretary for Education and Manpower

Mr H F LEE

Assistant Director of Education

Mr Brian DAGNALL, JP

Director of Accounting Services

Clerk in attendance :

Ms Pauline NG

Assistant Secretary General 1

Staff in attendance :

Mrs Vivian KAM

Chief Assistant Secretary (1)5

Mr Matthew LOO

Senior Assistant Secretary (1)7

---

As the Chairman, Mr Ronald ARCULLI, was not in Hong Kong, the Deputy Chairman, Mr Henry WU, chaired the meeting.

Item No. 1 - FCR(97-98)76

RECOMMENDATIONS OF THE ESTABLISHMENT SUBCOMMITTEE MADE ON 19 NOVEMBER 1997

2. The Committee approved the proposal.

Item No. 2 - FCR(97-98)77

RECOMMENDATIONS OF THE PUBLIC WORKS SUBCOMMITTEE MADE ON 13 AND 26 NOVEMBER 1997

3. At the request of a member, the Chairman directed that item PWSC(97-98)82 be voted separately. The proposal in FCR(97-98)77, except item PWSC(97-98)82, was put to vote and approved.

PWSC(97-98)82

286DS

Strategic Sewage Disposal Scheme Stage I: completion of sewage tunnel system from Chai Wan and Tseung Kwan O to Kwun Tong and from Kwun Tong to Stonecutters Island

4. Members noted that the project estimate had been revised from $1,308 million to $3,330 million for completion of the sewage tunnel system left behind by the defaulting contractor who unilaterally suspended works in June 1996. A member questioned why the additional cost of $2,000 million to complete the works was even higher than that of the entire project as in the original project estimate.

5. In response, the Director of Drainage Services (DDS) briefed members on the background and recent developments of the project. He explained that under Stage I of the Strategic Sewage Disposal Scheme (SSDS), six sewage tunnels had to be constructed to convey sewage from various catchments to the Stonecutters Island Sewage Treatment Works for treatment. The contractor however encountered difficulties in two of the six tunnels, but suspended works on all six in July 1996. The Administration had re-entered the sites and awarded a completion contract to proceed with the works of two of the six tunnels. However, additional expenditure had to be sought for completion of the remaining four tunnels which would be awarded on two contracts. Given the scale of the project, a significant sum would have to be incurred for meeting such costs as re-mobilisation of site resources, re-provisioning the tunnel boring machines, inflation, and consultants’ fees and resident site staff expenses.

	6. Referring to the technical problems encountered by the defaulting contractor, a member pointed out that $140 million had been committed for consultants’ fees during the project period. He questioned why the problems were not identified at an earlier stage, e.g. when the original design was drawn up, and whether the tunnelling methods were at fault. DDS advised that the problem was with water seepage in two of the tunnels. However, good progress was being made by the new completion contractor who had commenced work on one of the problematic tunnels as well as another tunnel. This was clear evidence that the work was technically feasible. The Administration had concluded that the problem was more commercial than technical. In fact, since the re-entry into the sites, the Administration had appointed eminent and independent experts to conduct investigations, and the experts had also confirmed the technical feasibility of the project. DDS agreed to make available to the Committee the reports prepared by the experts	Admin

7. As regards measures for preventing similar recurrences, the Deputy Secretary for Works assured members that the Administration had since introduced safeguards in the retendering exercise. These included the requirement for tenderers to provide Performance Bonds and Parent Company Guarantees, the award of the completion contracts to more than one tenderer, and briefings for tenderers on the contractual arrangements. On the confidence of the Administration in the new contractors’ ability in completing the works and the sufficiency of the funds sought, the Secretary for Works (S for W) stressed that both professionals within the Administration and the experts from overseas had confirmed the viability of the methodology. The $2,000 million sought would be sufficient to cover all necessary expenses for completion of the works. S for W confirmed in response to a member that there was no change in the contract specifications nor the requirements as contained in the first contract and the completion contract. He added that the Administration had adopted a cautious approach as legal proceedings were continuing.

8. Referring to the Environmental Impact Assessment (EIA) Study for Stage II of the SSDS, a member enquired if the works of Stage I ought to be deferred until the outcome of the EIA Study was available. The Principal Environmental Protection Officer said in response that the EIA Study for Stage II took as its basic building blocks the works of Stage I and the chemically enhanced primary treatment at Stonecutters Island. It was as yet too early to conclude on the need for higher treatment as reported in some press articles, but additional treatment would be provided if justified. He assured the Committee that whatever the outcome of the EIA study the sewage would still need to be collected for treatment and the minimum level of treatment would be chemically enhanced primary; therefore Stage I would always be needed and would not become redundant. S for W added that any further delay of the project would make the total construction costs much more costly.

9. Some members remained unconvinced and expressed reservation on the proposal. A member suggested that the proposal should be referred to the Environmental Affairs Panel for a more detailed discussion. Other members however reminded the Committee that the proposal had been considered at length by both the Planning, Lands and Works Panel and the Public Works Subcommittee. They saw the need to proceed with the works without delay because the cost would further escalate if the project were to drag on for a longer period. However, they concurred that remedial measures should be put in place, such as a review of the present policy of awarding contracts to the lowest bidders, to ensure that there would not be recurrences of similar situations. While the Administration should learn from the experience and introduce safeguards in preventing future recurrences, they did not see the need to defer the proposal.

10. In response to the Chairman, the Deputy Secretary for the Treasury (DS/Tsy) affirmed that the Administration was not prepared to withdraw the item.

11. The Chairman then put the item to vote: 21 members voted for the proposal, eight members against and three abstained.

Ayes :

Mr James TIEN Pei-chun	Mr HO Sai-chu
Mr Edward HO Sing-tin	Dr Raymond HO Chung-tai
Mr LEE Kai-ming	Mr Allen LEE
Mrs Elsie TU	Mrs Selina CHOW
Mrs Peggy LAM	Mr Henry TANG Ying-yen
Dr LEONG Che-hung	Mrs Sophie LEUNG LAU Yau-fun
Mr CHENG Kai-nam	Mr Andrew WONG Wang-fat
Mr Kennedy WONG Ying-ho	Mr Howard YOUNG
Mr YEUNG Yiu-chung	Mr IP Kwok-him
Mr LAU Kong-wah	Mr Timothy FOK Tsun-ting
Mr LO Suk-ching

(21 members)

Nos :

Mr WONG Siu-yee	Prof NG Ching-fai
Mr NGAI Shiu-kit	Dr TSO WONG Man-yin
Mr CHAN Choi-hi	Mr Frederick FUNG Kin-kee
Dr LAW Cheung-kwok

(7 members)

Abstentions :

Mr MA Fung-kwok	Dr Charles YEUNG Chun-kam
Mr Ambrose LAU Hon-chuen

(3 members)

12. The Committee approved the proposal.

(Post-meeting note: Miss CHOY So-yuk advised subsequently that she had voted against the proposal but her name did not appear on the printout. After checking with the technician who confirmed that Miss CHOY's vote had been registered by the voting machine although her name was not shown in the printout, the Chairman directed to put on record Miss CHOY So-yuk as having voted against the proposal.)

Item No. 3 - FCR(97-98)78

HEAD 46 - GENERAL EXPENSES OF THE CIVIL SERVICE

• Subhead 014 Home Purchase Allowance

13. As the Home Financing Scheme was introduced as early as 1990, a member enquired the reason for the proposal after so many years to synchronise the adjustment date of the allowance under the Scheme with that under the Home Purchase Scheme. The Principal Assistant Secretary for the Civil Service (1) explained that the issue had only come up recently and that the Administration was responding to a request from the staff side. He confirmed that no savings would result from the proposal.

14. The Committee approved the proposal.

Item No. 4 - FCR(97-98)79

HEAD 46 - GENERAL EXPENSES OF THE CIVIL SERVICE

• Subhead 022 Passages

15. The Committee approved the proposal.

Item No. 5 - FCR(97-98)80

HEAD 177 - SUBVENTIONS : NON-DEPARTMENTAL PUBLIC BODIES

• Subhead 514 Hospital Authority

16. Dr LEONG Che-hung and Mrs Sophie LEUNG declared interest as members of the Hospital Authority (HA) Board.

17. In reply to members on the double repayment of $202.35 million by HA to the Government and measures for preventing similar recurrences, the Deputy Secretary for Health and Welfare (DS/H&W) admitted that both sides were at fault. He explained that similar to past years, the Government through the Health and Welfare Bureau (HWB), paid to HA an advance of $202.35 million in early 1997 to enable HA to pay Chinese New Year Advance to eligible HA staff. This sum was required to be repaid by HA to the Government before the end of the financial year. Because of the rather simple accounting procedure adopted to record the transactions between the HWB and HA, an error was made whereby the sum was repaid to HWB twice. The Chief Executive of Hospital Authority (CE/HA) also acknowledged the error committed by HA. He assured the Committee that HA had since conducted an internal investigation, and had introduced measures to improve the accounting procedures. In reply to members, CE/HA confirmed that HA's auditors would review HA's internal financial control procedures and report any major findings to the HA Board. Although the double repayment had not created difficulties with HA's cashflow at the moment, many outstanding accounts would have to be settled towards the end of the financial year and deferral of the supplementary provision to a later stage as suggested by a member would not be feasible. The Secretary for the Treasury (S for Tsy) added that HA's total recurrent subvention in 1996-97 was about $20 billion and on this basis would need a cashflow of $1.7 to $1.8 billion per month. With a cash reserve of only about $240 million and in view of the double repayment of $202 million made, HA had little room to manoeuvre as far as cashflow was concerned.

18. As regards whether similar mishaps had occurred in the past, S for Tsy advised that, as far as he was aware, there had not been mishaps involving sums of such a scale. As for the situation with HA's suppliers, CE/HA affirmed that as part of the established practices, bills submitted by suppliers were carefully checked and processed and that no previous cases of overpayment had been detected. On the action to be taken on the officers responsible for the double repayment, CE/HA advised that the officer concerned in HA had resigned while DS/H&W said that the Administration would have regard to the underlying cause of the mistake and the adequacy of the accounting system in place before deciding on the necessary course of action to be taken.

19. A member pointed out that an interest of about $2.35 million would have accrued from the overpaid amount, and sought clarification on the Administration's statement in the discussion paper that the double repayment had not resulted in any material financial loss to either the Government or HA. The Deputy Director (Finance) of Hospital Authority (DD/HA) explained that HA's estimate was constructed based on an expenditure estimate, and the amount of grant from the Government to HA was calculated by deducting HA's income from its expenditure. As income received by HA from Government funds was accounted for on an actual basis in the grant to HA, whether the sum of double repayment was with HA or the Government would make no material differences to either HA's or Government's finances.

20. In response to a member on the cross-checking mechanism recently implemented, DD/HA clarified that this involved the provision of data by the Financial Control Section of HA to the Treasury Section whose staff would perform on-line checking of the accounts in relation to Government subvention. This checking mechanism would facilitate monitoring and ensure timely clearance of any suspense accounts.

21. The Committee approved the proposal.

Item No. 6 - FCR(97-98)81

HEAD 146 -

GOVERNMENT SECRETARIAT : EDUCATION AND MANPOWER BUREAU

• Subhead 001 Salaries

• New Capital Account Subhead "Grant to a Quality Education Fund"

HEAD 188 - TREASURY

• Subhead 001 Salaries

22. Members were supportive of the establishment of a Quality Education Fund as it would raise the quality of school education. Some however had reservation on the proposal for the Education and Manpower Bureau (EMB) and the Education Department (ED) to make applications for funds alongside with non-Government organisations. They pointed out that Government bureaux and departments should be making use of their own resources instead of competing for allocations from the Fund with outside organisations, and that the appointment by the Secretary for Education and Manpower (SEM) of members of the steering committee for vetting applications would also create conflicts of interest.

23. In response, SEM advised that the establishment of the Fund had been recommended by the Education Commission in its Report No. 7. As the Fund was aimed at improving the quality of school education, projects which fell within such a remit should qualify for the Fund. This would include projects initiated by EMB on researches on educational issues targeted at enhancing the quality of school education. The same consideration would apply to ED which was responsible for the management of public sector schools. Turning to the concern on possible conflicts of interest, SEM said that the operations of the Fund would be highly transparent. The accounts of the Fund would be made public every year and would be subject to audit by the Audit Commission. Relevant data would be provided to the Education Panel, and regular discussions would also be held with the Panel on the operation and progress of the Fund. SEM added that he would not dispel the possibility of making public regularly reports on applications for the Fund, the amount approved and the projects concerned.

24. Some members were not convinced of the Administration's response. They were worried that by allowing Government departments and bureaux to make use of the Fund instead of seeking allocations in the normal resource allocation exercises would create confusion and bring about ambiguity between the roles of Government and non-Government bodies. DS/Tsy assured members that as stated categorically in the Finance Committee agenda item the Fund would not be used to create posts within the civil service, and that the proposal was not intended to bypass the control for recurrent expenditure. SEM clarified that while the Fund would support non-recurrent expenses, there might be applications from ED or public sector schools for provision of funds to appoint research staff to conduct pilot schemes for improving teaching methods. As such schemes would have definite time frames and clear objectives for improving the quality of education, such applications would also be considered. The Deputy Secretary for Education and Manpower (DS/E&M) added that EMB assumed the role of monitoring the quality of education and as such might need to undertake reviews and researches on a macro basis.

25. Some members stressed that the results of enhancements to the quality of school education should be quantifiable and that the objectives should be clear. They were disappointed by the vague descriptions provided in the discussion paper on various aspects of the Fund, and held the view that the Administration had failed to provide clear objectives on how the Fund would be spent, on the respective roles and the division of responsibilities between Government and non-Government organisations, and on how efforts would be co-ordinated. In the absence of such indicators and guidelines, wastage would be likely and this would be liable to audit queries. These members felt that the operations of the Fund was not well thought out and suggested that the Administration should give further thought to the proposal from the angles of cost-effectiveness and implementation details before coming back to the Committee for endorsement.

26. SEM said in response that a steering committee would be set up under the Education Commission to vet applications. As regards the effectiveness of the Fund, the assessment criteria for allocation of grant set out in Enclosure 2 of the discussion paper had made it clear that applicants would be required to state the expected results of the projects and how these would contribute towards quality education. He emphasised that the effect of such projects might only be seen in time, and that follow-up researches might have to be conducted in order to assess the effectiveness of projects. SEM supplemented that the Language Fund also operated on a similar basis.

27. Referring to the proposal to increase the establishment ceiling to permit the creation of additional non-directorate posts, a member questioned the need to create these posts at this stage when the proposal to create the two directorate posts to head the team had yet to be submitted to the Establishment Subcommittee. He questioned if the approval of the present proposal would pre-empt the decision of the Subcommittee.

28. DS/E&M and DS/Tsy explained that proposal for creating the two permanent directorate posts would be submitted to the Establishment Subcommittee in January 1998. As applications for the Fund were expected by January 1998, two supernumerary directorate posts had been created under delegated authority to undertake planning work, and the incumbents would require executive and clerical support. There had been precedence such as posts associated with computer systems where proposals to raise the establishment ceiling were included in the same Finance Committee agenda item to approve the projects. DS/Tsy emphasised that the two staffing proposals, that is, the raising of notional annual mid-point salary in this paper for the non-directorate posts and the creation of two directorate posts were to be separately and independently considered by this Committee and the Establishment Subcommittee, and that the Committee's decision would not pre-empt the subsequent decision of the Establishment Subcommittee.

29. In response to a member, SEM confirmed that the Fund would not be used to fund the additional posts outlined in the paper and referred to in paragraphs 27 and 28 above. As regards the member's view that it would be more reliable for applications to be made on a school basis as opposed to an individual basis, he advised that worthwhile cases from individuals should also be considered and that all applications would be vetted stringently.

30. Some members remained dissatisfied with the lack of implementation details on the scheme and remarked that neither the establishment of the steering committee nor regular reports to the Education Panel would solve the problems highlighted. They suggested that the principles in approving applications be further deliberated by the relevant Panel, but had no objection to providing the necessary manpower to prepare for the implementation of the scheme. They requested separate voting on the $5,000 million commitment for establishing the Quality Education Fund and the provisions for creation of the non-directorate posts. DS/Tsy advised that the Administration was not prepared to separate the two proposals which were related. She stressed that the Committee's approval was required to fulfil the Administration's commitment to quality education as pledged by the Chief Executive in his Policy Address, and that SEM as the Controlling Officer of the Fund had undertaken to make regular reports to the Education Panel.

31. The Chairman put the item to vote: 16 members voted for the proposal, four voted against and two abstained.

Ayes :

Mr WONG Siu-yee	Mr HO Sai-chu
Mr Edward HO Sing-tin	Mr LEE Kai-ming
Mr Allen LEE	Mrs Elsie TU
Mrs Selina CHOW	Mrs Peggy LAM
Mrs Sophie LEUNG LAU Yau-fun	Mr CHAN Kam-lam
Mr Howard YOUNG	Dr Charles YEUNG Chun-kam
Mr YEUNG Yiu-chung	Mr IP Kwok-him
Mr CHENG Yiu-tong	Dr LAW Cheung-kwok

(16 members)

Nos :

Mr Eric LI Ka-cheung	Dr LEONG Che-hung
Mr CHAN Choi-hi	Mr Andrew WONG Wang-fat

(4 members)

Abstentions :

Prof NG Ching-fai

Dr TSO WONG Man-yin

(2 members)

32. The Committee approved the proposal.

33. The Committee was adjourned at 4:55 pm.

Provisional Legislative Council Secretariat
23 January 1998