Provisional Legislative Council

PLC Paper No. CB(1) 1307
(These minutes have been
seen by the Administration.)

Ref : CB1/PL/TP/1

Panel on Transport

Minutes of Meeting
held on Saturday, 21 February 1998, at 9:00 am
in the Chamber of the Legislative Council Building

Members present :

Hon Mrs Miriam LAU Kin-yee, JP (Chairman)
Hon WONG Siu-yee
Hon Mrs Selina CHOW, JP
Hon Henry WU
Hon CHAN Wing-chan
Hon CHAN Kam-lam
Hon NGAN Kam-chuen

Members absent :

Hon CHEUNG Hon-chung (Deputy Chairman)
Hon Edward HO Sing-tin, JP
Dr Hon Raymond HO Chung-tai, JP
Hon LEE Kai-ming
Hon CHAN Choi-hi
Hon CHENG Kai-nam
Hon Andrew WONG Wang-fat, JP
Hon LAU Kong-wah
Hon CHOY Kan-pui, JP
Dr Hon TANG Siu-tong, JP
Dr Hon LAW Cheung-kwok

Public officers attending :

Mr Nicholas NG, JP
Secretary for Transport

Mr Isaac Y N CHOW, JP
Deputy Secretary for Transport

Mrs Fanny LAW, JP
Commissioner for Transport

Mrs Dorothy CHAN, JP
Deputy Commissioner for Transport

Clerk in attendance :

Ms Estella CHAN,
Chief Assistant Secretary (1)4

Staff in attendance :

Ms Sarah YUEN,
Senior Assistant Secretary (1)4

I Briefing on review of China Motor Bus Company Limited's franchise
(PLC Paper No. CB(1)970)

The Secretary for Transport (S for T) briefed members on the Administration's decision not to renew the franchise of China Motor Bus Company Limited (CMB) and to invite tenders to operate a network of 88 routes on Hong Kong Island under a franchise of five years. He said that much patience and endurance had been exercised in the Administration's negotiation with CMB over the renewal of its franchise. However, as the expiry of CMB's current franchise on 31 August 1998 could not permit further protracted negotiation and the Administration was not confident that CMB would be able to provide the service up to the standard the public demanded, the above decision was made to ensure that public interests were safeguarded. In this regard, the objective of the tender exercise would be to maintain continuous provision of the bus service, while giving due regard to the need to maintain healthy competition and to provide commuters with an efficient network of bus services. He stressed that tenders received would be assessed on the basis of the quality of the bidders' proposals to meet this objective. In reply to a member, the Commissioner for Transport (C for T) also confirmed that all parties, including CMB, were welcome to put in tenders for the new franchise.

2 Members in general supported the decision not to renew CMB's franchise. They were however keen to ensure that there would be continuous provision of quality bus services on Hong Kong Island both before and after the expiry of CMB's franchise, and that the award of the new franchise would not lead to monopoly by any one bus operator or higher bus fares. They also stressed that satisfactory arrangements should be made to protect the interests of the existing staff of CMB.

Maintenance of competition

3 Commenting on a member's proposal to split up the 88 routes on offer instead of tendering them out in one package so as to enhance competition and hence service quality, C for T pointed out that having regard to the fact that Hong Kong Island was very small, splitting of the routes would affect the profitability and attractiveness of the package. Moreover, there would be problems in allocation of land resources such as bus stops and depots if too many bus companies operated on the Island. Despite the fact that there might be at most only two bus operators competing on Hong Kong Island, she assured members that the Administration would closely monitor the new franchisee's performance to ensure that it would nonetheless provide quality service.

4 Some members expressed concern that another monopoly might emerge if bidders' experience in the operation of a public bus service would be taken into account when the Administration considered the tenders as this would give existing bus operators an edge over starters. In response, the Administration stressed that experience was only one of the tender assessment criteria, which also included factors like the candidates' ability to provide quality service, operation efficiency, proposed arrangements for CMB staff and the effective maintenance of healthy competition. Moreover, apart from experience in operating a bus company, the Administration would also look at the bidders' experience in managing a business. As a result, the new franchisee might not necessarily be an existing bus operator.

5 Summing up their response to members' views on maintenance of competition, the Administration emphasised that they recognised the need to bring in more competition in the provision of public bus service on Hong Kong Island. In awarding the franchise, the Administration would carefully balance the above criteria against one another according to the actual situation. However, enhancing competition was only the means to achieving better quality of service which was the ultimate objective. The Chairman quoted the British experience that competition might not necessarily lead to better service, and that there was a need to exercise care in balancing all considerations.

Arrangements for CMB staff

6 Regarding members' concern about the arrangements for the existing staff of CMB, and whether the successful bidder would maintain the pay and benefits of CMB employees willing to serve the new company, C for T advised that as one of the tender conditions, the successful bidder, if not the incumbent franchisee, was required to make a first offer of employment to the existing front-line staff of CMB on prevailing market terms. To safeguard the interests of current CMB employees, all bidders were also asked to suggest measures to ensure a smooth transition. This would mean that the terms they offered to CMB staff would be taken into consideration when the Administration assessed their tenders on the ground of staff morale and hence smooth transition.

7 The Administration further pointed out that even though the new operator might not be able to absorb all CMB staff as the network on offer was smaller than the original CMB network, staff affected would receive pension and/or severance pay according to law. Given the current vacancy situation in the industry, some of the CMB staff, who were experienced in the public transport system, could be absorbed by other bus operators. One potential bidder had declared in public that it would consider arranging employment for surplus staff in companies within the same group. Both the Transport Department and the Labour Department would actively liaise with the other bus operators to provide placement assistance. In fact, Citybus had already agreed to absorb CMB's maintenance staff when its Aldrich Bay depot commenced operations in mid 1998. In addition, the Labour Department had already set up two hot-lines for answering enquiries from CMB staff. CMB staff could also call on the Labour Department's Labour Relations Division for assistance.

Possibility of increases in bus fares

8 Noting that 35% of the CMB fleet were buses more than 18 years old and that the replacement of these old buses within two years was one of the criteria listed in the invitation to tender for the new franchise, which would only last for five years, members expressed concern that the need to recover the replacement costs within the franchise period might necessitate increases in bus fares. Where the bus replacement programme was concerned, the Administration pointed out that as proven by Citybus's experience when it took up 26 bus routes on Hong Kong Island in 1993, the need to purchase new buses might not necessarily lead to higher fares as the costs incurred could be offset by higher operation efficiency. In the long run, new buses might even cost the operator less in maintenance. As for the rationale for drawing the line at 18 years, C for T explained that there was a need to conduct a complete overhaul of a bus in its 17th year. The enormous cost involved in this respect would make replacement more cost-effective. In reply to a member, C for T also advised that the condition to replace CMB's dilapidated bus fleet within two years was stricter than that imposed on CMB, which had been requested to replace its buses within three years. She further advised that setting a maximum age was a better indicator of the quality of the fleet than the average age as the latter would vary with the age profile of the fleet.

9 Concerning a member's comment that the new franchise should be long enough to enable investors to spread out the costs and relieve the pressure on fare increase, S for T pointed out that having regard to the fact that the franchise could be the beginning of a long-term undertaking if the performance of the new franchisee warranted the renewal of the franchise, the need to recover costs within a short time should not be too great. As regards the view that a lengthy franchise might make it difficult to exercise quality control, C for T advised that given the large investment involved, the franchise had to be long enough to attract investors. The Administration would monitor the new franchisee closely to ensure that quality service would be provided. Furthermore, the franchise could be terminated prior to its expiry if the required standard could not be met.

10 Where fares were concerned, S for T assured members that bidders were required to submit proposals on fares to be charged on the tendered routes which should be commensurate with the level and quality of services proposed, and the Administration would look at the bidders' commitments to investment in assessing the need for future fare increases. In addition, future fare increases would be subject to approval by the Administration in consideration of the service quality and the acceptability to the public. He stressed that the ability to provide quality and value for money service was of paramount importance in the assessment of potential franchisees.

Continuous provision of satisfactory bus service

11 Noting that the start of the new franchise would co-incide with the end of school holidays in September 1998, members were concerned about the chaos that might arise from the transition. In response, the Administration assured that appropriate assistance would be provided where necessary to the new operator to ensure uninterrupted service. With the announcement of the tender results in early April, there would be enough time for the new operator to liaise with CMB for use of its fleet and depots. If need be, government might consider exercising its powers under the Public Bus Services Ordinance to take temporary possession of CMB's bus-related assets on its franchise expiry and designate them for use by the new operator. In that case CMB would be paid compensation according to market price. Having regard to the above and the availability of the necessary manpower resources in the existing staff of CMB, the Administration was confident that there would be continuous provision of bus services. Members further noted that as a guarantee for quality service, the Administration would require bidders to set service targets in their tenders for inclusion as terms in the new franchise. This would empower the Administration to take action according to law should the new operator fail to meet the set targets.

12 In respect to members' concern about possible deterioration of CMB's service prior to the expiry of its franchise, C for T said that she was confident that CMB would keep up its service until 31 August 1998 because this would be in the best interest of both CMB shareholders and staff. Nonetheless, the Administration would closely monitor CMB's performance during this period. As a last resort, the Government could activate contingency measures to take over its operations in accordance with the Public Bus Services Ordinance. In the case of a take-over, other bus companies would be deployed to provide temporary service before the new franchisee took up the operation. Another option was to require the new franchisee to start its operations earlier. Either measure could ensure continuous provision of satisfactory bus service on Hong Kong Island.

13 At the Chairman's request, the Administration agreed to report to the Transport Panel of the first Legislative Council on the transitional arrangements before commencement of the new franchise.

14 The meeting ended at 10:10 am.

Provisional Legislative Council Secretariat
12 May 1998