FCR(1999-2000)21

For discussion
on 11 June 1999

HEAD 120 - PENSIONS
Subhead 015 Public and judicial service pension benefits and compensation

Members are invited -

1. to approve an ex-gratia award to abattoir grades staff who will be compulsorily retired upon the closure of the Kennedy Town Abattoir
   By-products Plant and the Cheung Sha Wan Abattoir; and

2. to note the total estimated financial implications involved in this abolition of office exercise.

PROBLEM

Under Phase II of the privatization of the abattoirs, 220 abattoir grades staff in the Urban Services Department (USD) will become redundant upon the closure of the Kennedy Town Abattoir By-products Plant (KTABPP) and the Cheung Sha Wan Abattoir (CSWA) as a result of the commissioning of the Sheung Shui Slaughterhouse (SSSH) in August 1999.

PROPOSAL

2. In line with the package offered to the redundant abattoir grades staff in Phase I of the privatization of the abattoirs in 1990, we propose to provide an ex-gratia award made up of a fixed payment equivalent to six times an officer's final monthly salary and an additional payment of two months' salary for every ten years of service and pro-rata for shorter periods to the 220 abattoir grades staff when they are retired on abolition of office (AOO) terms upon deletion of their posts. This is in addition to the statutory pension payments and the enhanced element payable under the Pensions Ordinance and the Pension Benefits Ordinance (hereinafter referred to as the "pensions ordinances").

JUSTIFICATION

3. KTABPP and CSWA are facilities managed by the Provisional Urban Council (PUC). To tie in with the phased commissioning of SSSH, the Director of Urban Services (DUS) will, as decided by the PUC, close KTABPP and CSWA respectively on 22 August 1999 and 3 October 1999 (or a later date as explained in paragraph 12 below). When KTABPP is closed, DUS will transfer the butchery staff working there to CSWA to cope with the slaughtering of additional pigs partially diverted from the privately-operated Kennedy Town Abattoir (KTA) in August 1999. In accordance with the commissioning programme of SSSH, all slaughtering operations carried out in CSWA will be taken up by SSSH as from 3 October 1999, unless it is necessary to implement the contingency arrangement outlined in paragraph 12 below.

Staff Involved

4. The closure of KTABPP and CSWA will affect a total of 470 civil service staff working in USD comprising 220 abattoir grades staff and 250 non-abattoir grades staff, as follows -

Abattoir Grades Staff

5. On 2 September 1998, the PUC agreed to the Government's decommissioning programmes of the three existing abattoirs and the contingency plans for the commissioning of SSSH, under which CSWA was planned to be closed upon completion of Phase I commissioning of SSSH. Subsequent to the PUC's decision, DUS informed the staff that the provisional closure date of CSWA was 3 October 1999 but added that the date was subject to change. Also, in accordance with existing government policy, DUS consulted all the abattoir grades staff in September 1998 about their preference for either retirement on AOO terms or redeployment to fill vacancies in other grades within the civil service with retention of personal salary and non-job related benefits. Of the 220 staff, 123 have indicated a preference for retirement on AOO terms while the remaining 97 prefer to continue employment in the civil service.

6. For those staff who have indicated a preference to retire on AOO terms, they are eligible for the grant of statutory pension payments together with an enhanced element payable under the pensions ordinances. In addition, we propose that they be granted an ex-gratia award consisting of -

1. a fixed payment equivalent to six times an officer's final monthly salary; and

2. an additional payment of two months' salary for every ten years of service and pro-rata for shorter periods.

7. The lump-sum payment of six-months' final salary mentioned in paragraph 6(a) above is the normal rate of ex-gratia payment adopted in redundancy exercises to compensate for the loss of fringe benefits. As regards the offer of an additional ex-gratia payment based on length of service proposed in paragraph 6(b) above, it was exceptionally justified in Phase I of the privatization of abattoir programme, as approved by the Finance Committee in November 1990. That took into account the facts that abattoir staff would have more problems securing other jobs as there were limited outlets for their specialised skills and that even if they could secure jobs, they would have considerable problems in adjustment. As the current exercise is Phase II of the same privatization programme, it is only fair and reasonable that the redundant staff be awarded with the same ex-gratia payment element. Indeed, some of the current staff in CSWA were redeployed from KTA as a result of Phase I of the programme. They would react very strongly if the current package is less favourable than that offered in Phase I.

8. For the 97 staff who have indicated preference for redeployment to other grades, we have since December 1998 explored their redeployment opportunities in the civil service. However, the latest development is that all efforts to identify redeployment for these staff, with the exception of one request which is being considered, have been unsuccessful. This is largely due to the following reasons -

1. there are no vacancies in USD and other departments at the suitable ranks to which the abattoir grades staff wish to or may be redeployed;

2. departments (including USD) are restricting their staff growth and will only fill existing vacancies in exceptional circumstances in order to achieve cost effectiveness in delivering their services;

3. the staff concerned have been found unsuitable for vacancies in the ranks to which they seek redeployment as the majority of them do not meet the minimum qualification required; and

4. USD has to reserve some existing vacancies in certain ranks to absorb the surplus non-abattoir grades staff who are not eligible for retirement on AOO terms upon the closure of CSWA, KTA and KTABPP.

9.The outstanding redeployment request is still being processed. In the event that it is unsuccessful, the 97 abattoir grades staff seeking redeployment, like the other 123 abattoir grades staff, will also have to be retired on AOO terms as set out in paragraph 6 above.

10. USD has informed the staff and staff unions concerned of the non-availability of redeployment opportunities for the abattoir grades staff. While expressing disappointment at not being able to be absorbed into other grades within the civil service, the staff were generally concerned about the ex-gratia award in the proposed redundancy package if they were to be compulsorily retired on AOO terms and sought early confirmation.

Non-abattoir Grades Staff

11. As for the 250 non-abattoir grades staff, we will arrange to re-post them to vacant posts within USD or in other government departments. We do not envisage redundancy in these staff.

Closure of CSWA

12. The commissioning programme of SSSH comprises four phases. Each phase is expected to last a minimum of 42 days. But it would be longer than 42 days, say up to an extra 90 days for remedial purposes in case of complete shutdown of SSSH. As advised by the Architectural Services Department (ArchSD), the risk of malfunctioning of the waste water treatment facilities at SSSH is the highest during Phase I commissioning. To ensure a stable and hygienic fresh meat supply in the public interest, the PUC agreed on 1 June 1999 to keep CSWA open beyond 2 October 1999, up to 31 December 1999, if necessary so that CSWA will be available to continue normal operation and to share the additional workload until satisfactory completion of Phase I commissioning of SSSH.

13. According to ArchSD, it will be clear by 25 September 1999 as to whether there will be a need to keep CSWA in operation beyond 2 October. In the circumstances, DUS will decide by then on either ceasing the need for the staff's service on 3 October or retaining all or part of the staff to continue operating CSWA until a date, possibly up to 31 December 1999, if necessary. In the latter case, the staff's service termination and their retirement dates will be determined by the date of the closure of the CSWA. USD will continue to liaise closely with the staff to ensure they are kept fully in the picture over the effect of the possible contingency arrangement on the commencement of their pre-retirement leave and the actual retirement dates.

FINANCIAL IMPLICATIONS

14. While normal pensions for the officers to be retired on AOO terms are the government's liability, the PUC has agreed to meet the cost of the enhanced pension and ex-gratia award. The PUC has included the necessary financial provision in its 1999-2000 annual estimates to meet the payments.

15. DUS estimates the financial implications for redundancy payments to the 220 abattoir grades staff arising from the closure of CSWA on 3 October 1999 are as follows -

The above-mentioned total sums will be slightly increased, calculated according to the established formula with reference to the actual discharge date, if the affected staff's retirement date is somewhat put back in light of the contingency arrangements. For the purpose of illustration, if all the 220 staff are retained up to 31 December 1999, we estimate the total commuted pension gratuities payment and annual pension payments at $166.23 million and $12.16 million respectively, whereas the total ex-gratia award would cost $40.27 million.

16. Payments (including the enhanced pension and ex-gratia award to be paid by the PUC) will be made to staff by the Government in the first instance and the PUC will reimburse the Government the appropriate sum subsequently. Similar accounting arrangements were adopted in the Phase I exercise in 1990. Sufficient provision has been included in the 1999-2000 Estimates to meet the Government's liability.

BACKGROUND INFORMATION

17. On 17 March 1987, the Executive Council noted the then Urban Council's decision to privatize the two urban abattoirs under its management (KTA and CSWA) and ordered that an ex-gratia payment in addition to the statutory pension payment should be offered to staff made redundant as a result of the privatization exercise. The privatization of the abattoirs is divided into two phases. Phase I involved the leasing of the existing KTA with the exception of KTABPP to a private operator in November 1990. Phase II (the current exercise) involves the development of the SSSH to replace KTA, KTABPP, CSWA and Yuen Long Slaughterhouse.

18. On 25 July 1990, Finance Committee approved payment of an ex-gratia award, calculated on terms as set out in paragraph 6 above, to staff who retired on AOO terms under Phase I of the abattoir privatization programme in November 1990.

19. On 1 July 1996, Finance Committee approved the upgrading of the project of the construction of SSSH to Category A in the Public Works Programme at an estimated project cost of $1,793.18 million in money-of-the-day prices. Based on ArchSD's latest estimate, SSSH is expected to commence the Phase I commissioning in August 1999.

20. On 16 February 1998, the PUC noted the staffing arrangements outlined in paragraphs 5 and 11 above and endorsed the redundancy package set out in paragraph 6 above.

Urban Services Department
June 1999