FCR(98-99)55

For discussion
on 18 December 1998

CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Information Technology and Broadcasting Bureau
New Subhead "Implementation of the First Phase of the Electronic Service Delivery scheme"

Members are invited to approve the creation of a new commitment of $123.2 million to implement the first phase of the Electronic Service Delivery scheme.

PROBLEM

We need to improve the quality and efficiency in the delivery of public services and to meet increasing service demand in the new Information Age. We also need to use Government services to act as a catalyst to pump-prime the development of electronic commerce in Hong Kong.

PROPOSAL

2. The Secretary for Information Technology and Broadcasting proposes a non-recurrent commitment of $123.2 million to implement the first phase of the Electronic Service Delivery (ESD) scheme.

JUSTIFICATION

Background

3. The Chief Executive outlined in the 1997 Policy Address his vision to make Hong Kong a leader in the information world of tomorrow. He further pledged in the 1998 Policy Address that we should use information technology (IT) to help retain our competitive edge and in driving our overall economic expansion. To implement the IT vision of the Chief Executive, we have formulated the "Digital 21" IT Strategy, which is to enhance and promote Hong Kong's information infrastructure and services so as to make Hong Kong a leading digital city in the globally connected world of the 21^st century.

4. One key initiative which we have identified in implementing the "Digital 21" Strategy is the provision of public services to the community electronically, through an information infrastructure with an open and common interface which is accessible throughout the territory, i.e. the ESD scheme. We consider the scheme a viable means -

1. to enable us to improve the quality and efficiency in the delivery of public services;

2. to improve the accessibility and widen the reach of such services; and

3. to reduce the cost of providing such services in the longer term.

Through ESD, we will be able to meet increasing service demand in the new Information Age. It will also help to pump-prime the development of electronic commerce in Hong Kong.

ESD scheme

5. We are now preparing for the implementation of the ESD scheme to provide public services to the community on-line. Potential access means for obtaining ESD services include -

1. personal computers at home or in the office over the Internet;

2. computers installed by Government at convenient public places which provide access to the Internet, e.g. district offices, public libraries;

3. public payphone systems with interactive interface over the local telecommunication networks;

4. interactive television;

5. public kiosks installed by the ESD operator at convenient locations providing access to ESD services; and

6. other possible electronic means.

6. We plan to contract a private sector operator to establish the ESD information infrastructure with its own investment. We will set up at our own cost an appropriate interface between the ESD infrastructure and Government departments and agencies which will use the ESD system for providing services. We will use the ESD infrastructure for the delivery of public services to the community during the contract period, which will be for an initial period of five years and which can be extended for two further years. The operator will derive its revenue by charging Government on the basis of usage of the ESD system.

7. There are seven generic types of transactions which can be covered under the ESD scheme, as set out in Enclosure 1. A list of critical issues which have to be addressed in the implementation of the scheme is set out in Enclosure 2.

8. With implementation of the ESD scheme, the public will be able to transact business with Government on-line. By providing a single entry point, we can provide services on a seamless basis to the community, instead of following the conventional department-centric approach. We will be able to provide services 24 hours a day and seven days a week. In short, the scheme can transform the way public services are to be delivered. While we do not intend to use the scheme, at least in its initial stage of operation, to replace the existing form of providing services to the public over the counter, the scheme will offer a substantially more efficient and effective alternative means in the delivery of services to the community through a single common interface. The shifting of clients from obtaining Government services in conventional ways, such as over the counter, to through ESD would enable departments to cope with increasing demand in a more cost-effective manner or in some cases could justify the reduction of the extent of the present mode of service delivery, leading to higher productivity. We will review the requirements for the conventional type of delivery of those services covered under the first phase of ESD in the light of the scheme's operational experience.

9. We also anticipate that the scheme would act as a catalyst to promote the development of electronic commerce in the private sector, which can make use of the information infrastructure adopted for implementing the scheme for the conduct of electronic transactions at a later stage. This would also provide an additional and separate revenue source to the ESD operator which should help to reduce the cost to be borne by Government.

10. We intend to implement the ESD scheme progressively by phases. We will invite tenders for the ESD operation contract by the end of the year or early next year, award the contract within 1999 and roll out the first phase of the scheme in the latter half of 2000. Tentatively, we will include the services of ten departments and agencies in the first phase of the scheme, as set out in Enclosure 3. Depending on the nature of specific services and the proposals made by potential ESD operators in the tender exercise, some of these services may be made available only through some but not all of the access means set out in paragraph 5 above. We will provide the full details of these services in the tender document to be published so that potential bidders can use the information to draw up their own business case for the project.

Benefits

11. We have set out the general benefits of the ESD scheme in paragraphs 4, 8 and 9 above. As the scheme aims to provide alternative and better quality services to the public and we will not reduce existing services delivered through conventional form, at least in the initial stage, we do not anticipate that we can derive substantial savings immediately from the scheme. However, we anticipate that there would be significant savings in the longer run through streamlining service delivery and in terms of cost avoidance as departments which take part in the scheme would be able to meet increased service demand through the scheme rather than through an increase in resources for providing the conventional form of counter services. We will review the situation after the implementation of the scheme and take its impact into account to ensure optimal deployment of resources. We will make the fullest possible use of ESD to achieve productivity gains in the departments concerned.

12. Based on the services which we will tentatively cover in the first phase of the scheme, some specific examples of improvements in the quality of service delivery are -

1. taxpayers can submit their salaries tax return, pay their taxes or purchase tax reserve certificates electronically;

2. job-seekers can look for job vacancies and employers can submit job vacancies and search for suitable candidates electronically. This will substantially improve job searching and matching, and enhance the efficiency and effectiveness of the recruitment service provided by the Labour Department;

3. eligible individuals can register as a voter electronically and this will make future voter registration exercise substantially more effective;

4. drivers can renew their driving or vehicle licence (the renewed licence will be sent to the applicant by mail) or book appointment for road tests electronically. The current pledged waiting time for the renewal of driving or vehicle licence over service counter is 40 to 85 minutes, and in case of postal application, ten working days;

5. individuals can change electronically their personal particulars kept by various departments at one go if they so select, e.g. notifying the Inland Revenue Department (as a taxpayer), the Rating and Valuation Department (as a ratepayer), Transport Department (as a driving licence holder or a vehicle owner), and the Registration and Electoral Office (as a registered voter) about a change of address. At present, they have to notify individual departments separately;

6. clients can pay Government bills, e.g. rates, Government rent, water charges, electronically. This provides additional outlets and mechanisms for paying Government bills;

7. businesses can apply for business registration certificates (initially for sole proprietors only) and copies of extracts of the business register electronically. The processing time for application cases can be reduced from four to two days;

8. businesses can obtain advice and guidance on investment and business licensing requirements electronically, which makes such information more easily accessible. This is particularly useful to small and medium sized enterprises and individuals who wish to set up a business;

9. individuals can book appointment for identity card registration or search and apply for copies of birth/death/marriage certificate electronically. At present they have to visit the offices of the Immigration Department physically to obtain the latter services; and

10. clients can make on-line applications for volunteer scheme registration and senior citizen cards. The time taken for the issue of senior citizen cards can be reduced from seven to five working days.

Through ESD, members of the public will thus be able to obtain these services through a single common interface and at a place and time which are more convenient to them. In most cases, they will no longer need to travel physically to the Government offices concerned for obtaining the respective services. There will thus be substantial savings in community cost, in terms of time saved which can be used for work or leisure.

13. Moreover, in parallel with implementation of the scheme, we will establish a public key infrastructure and introduce legislation to provide a clear legal framework for electronic transactions. Also, use of the scheme by members of the public will help to raise awareness and trust in electronic transactions over the Internet. We will thus create an environment which is conducive to the development of electronic commerce in Hong Kong. This is important in strengthening our efficiency and productivity, thereby sharpening our overall competitiveness in the new Information Age and providing impetus for our economic growth.

FINANCIAL IMPLICATIONS

Non-recurrent expenditure

14. The capital cost to Government of implementing the first phase of the ESD scheme is estimated at $123.2 million, and the staff cost required for the implementation work at $27.6 million. We set out below details of the cost estimates -

	1998-99 $ million	1999-2000 $ million	2000-01 $ million	Total $ million
(a)Implementation services	-	30.0	30.0	60.0
(b)Hardware, software and communications	-	6.0	6.0	12.0
(c)Specialist and technical services	-	15.0	-	15.0
(d)Accounting/management consultancy for evaluation of tenders	-	3.0	-	3.0
(e)Publicity and promotion	-	-	6.0	6.0
(f)Miscellaneous items	-	6.0	10.0	16.0
(g)Contingency	-	6.0	5.2	11.2
	____	_____	_____	______
Sub-total	-	66.0	57.2	123.2
	____	_____	_____	______
(h)Staff costs
Information Technology Services Department (ITSD)	2.6	10.4	5.2	18.2
Departments and agencies	0.2	3.6	5.6	9.4
	____	_____	_____	______
Sub-total	2.8	14.0	10.8	27.6
	____	_____	_____	______
Total	2.8	80.0	68.0	150.8
	____	_____	_____	______

15. As regards paragraph 14(a), the expenditure of $60 million is for the hiring of services for the development of interfaces between the ESD system and the host systems of the ten departments and agencies which will participate in the first phase of the scheme.

16. As regards paragraph 14(b), the expenditure of $12 million is for the acquisition of computer hardware and software and the establishment of a secure communication network for the participating departments and agencies.

17. As regards paragraph 14(c), the expenditure of $15 million is for the hiring of specialist and technical services in areas in which practical implementation expertise is necessary, e.g. the use of smart card technology in the scheme.

18. As regards paragraph 14(d), the expenditure of $3 million is for the hiring of accounting/management consultancy expertise for the evaluation of the bids received, e.g. examination of the financial model proposed in the tender exercise.

19. As regards paragraph 14(e), the expenditure of $6 million is for publicising the ESD scheme and promoting the use of ESD services within the community.

20. As regards paragraph 14(f), the expenditure of $16 million is for site preparation work, the provision of training for the staff of the ITSD and the participating departments and agencies, and the acquisition of consumables and miscellaneous items during the implementation process.

21. As regards paragraph 14(g), the expenditure of $11.2 million represents a 10% contingency in respect of items (a) to (f) above.

22. As regards paragraph 14(h)(i), the expenditure of $18.2 million represents ITSD staff costs to be incurred for its implementation team to undertake overall project management, contract management, application development, system installation and co-ordination with the participating departments and agencies. It comprises 10.5 man-months of Assistant Director effort, 10.5 man-months of Chief Systems Manager effort, 42 man-months of Senior Systems Manager effort, 63 man-months of Systems Manager effort and 42 man-months of Analyst/Programmer I effort. ITSD will meet all these requirements from within its existing resources.

23. As regards paragraph 14(h)(ii), the expenditure of $9.4 million represents the combined staff costs of the ten participating departments and agencies to be incurred in the implementation process. The departments and agencies concerned will meet all these requirements from within their own resources.

Recurrent expenditure

24. The estimated recurrent cost of implementing the first phase of the ESD scheme for the initial three years is $48.3 million for 2000-01, rising to $75.6 million in 2001-02 and to $55.7 million in 2002-03. We set out below details of the cost estimates -

Recurrent expenditure	2000-01 $ million	2001-02 $ million	2002-03 $ million
(a)Fixed subscription fees payable annually to the ESD operator for departments and agencies to participate in the scheme	6.0	6.0	6.0
(b)ESD transaction fees	8.0	20.0	25.0
(c)Help desk and back end support	5.3	7.0	7.0
(d)Digital certificates for secure ESD transactions	17.0	25.5	-
(e)Digital certificates for users within Government	1.0	0.5	1.1
(f)Maintenance cost	2.2	2.9	2.9
	_____	_____	_____
Sub-total	39.5	61.9	42.0
	_____	_____	_____
(g)Staff costs
ITSD	4.4	8.8	8.8
Departments and agencies	4.4	4.9	4.9
	_____	_____	_____
Sub-total	8.8	13.7	13.7
	_____	_____	_____
Total	48.3	75.6	55.7
	_____	_____	_____

25. As regards paragraph 24(a) above, the expenditure of $6 million is the estimated total annual subscription fees payable to the ESD operator for ten departments and agencies to use the ESD system for providing services.

26. As regards paragraph 24(b) above, the expenditure of $8 million, $20 million and $25 million in 2000-01, 2001-02 and 2002-03 respectively is the payment of fees for transactions processed by the ESD operator at an estimate of $10 each. For 2000-01, we have estimated a transaction volume of 800 000 on the basis that we would implement the first phase of the scheme in the latter half of 2000. We forecast that the transaction volume would increase to 2 million in 2001-02, and to 2.5 million in 2002-03 as the community becomes more familiar with the operation of the scheme. We will advise ESD tenderers of the Government's estimated transaction volume but Government's payment to the ESD operator would be based on actual usage of the service. In other words, Government would not be bound by the estimated transaction volume in its financial obligations to the operator. Payment by Government to the operator would be based on the actual transaction volume and the fee per transaction to be negotiated with the ESD operator in the tender exercise. With Government meeting the transaction fees payable to the ESD operator, the public will not have to pay more for using ESD services. This would encourage the public to use the scheme for obtaining public services, thus opening the scope for reducing the existing provision of services in the conventional form. We will review the situation in three years after the implementation of the first phase of the scheme to assess whether the above arrangement for meeting the payment of ESD transaction fees should be modified.

27. As regards paragraph 24(c) above, the annual expenditure of $7 million represents the cost for providing a help-desk service and back-end support to the participating departments and agencies and the ESD service users, monitoring the secure network interfacing the ESD operator and our back-end systems, the agency servers, etc. as well as for receiving and routing of feedback on services to the participating departments and agencies. The first year estimate of $5.3 million reflects our plan to implement the first phase of the scheme in the latter half of 2000.

28. As regards paragraph 24(d), the expenditure of $17 million in 2000-01 and $25.5 million in 2001-02 represents Government contribution to assist ESD users to obtain digital certificates for the first time from certification authorities (CAs) for carrying out secure ESD transactions. We estimate that there would be 800 000 transactions in 2000-01 and some 340 000 are likely to require authentication. Discounting possible overlap, and assuming a contribution of $100 per certificate with a two-year validity period, we estimate that $17 million is required in 2000-01. The increase in expenditure to $25.5 million in 2001-02 reflects the estimated increase in transaction volume and thus the increase in the demand for digital certificates. Like the payment for ESD transaction fees, provision for meeting part of the cost of digital certificates required by users of ESD services will depend on the public demand for such certificates as well as the fee level to be set by CAs. By meeting part of the cost for the issue of first time digital certificates to ESD users in the initial period of ESD operation (up to the end of 2001-02), we will encourage users to take part in secure electronic transactions. This is justified as a form of Government investment to kick-start and encourage the community to engage in electronic commerce and to build up the public key infrastructure in Hong Kong. However, as the certificates can be used for other non-ESD purposes, we do not consider that the arrangement should be permanent. The normal user-pays principle should apply after 2001-02 and therefore we have not assumed continued expenditure for this item from 2002-03 onwards.

29. As regards paragraph 24(e), the expenditure of $1 million in 2000-01 represents the costs for procuring digital certificates for Government officers. On the assumption that the certificates have a validity period of two years and taking into account increase in demand, the expenditure will decrease in 2001-02 and rise again in 2002-03.

30. As regards paragraph 24 (f), the annual expenditure of $2.9 million represents the recurrent maintenance cost for the departmental systems interface for ESD, computer facilities installed by Government in public places, etc.

31. As regards paragraph 24(g)(i), the annual expenditure of $8.8 million in 2001-02 and 2002-03 represents the staff costs of the ITSD support effort for contract management, co-ordination with the participating departments and agencies and for developing new ESD services. It comprises three man-months of Assistant Director effort, six man-months of Chief Systems Manager effort, 24 man-months of Senior Systems Manager effort, 24 man-months of Systems Manager effort and 24 man-months of Analyst/Programmer I effort. The cost of $4.4 million for 2000-01 represents a half-year requirement. ITSD will meet these requirements from within its existing resources.

32. As regards paragraph 24(g)(ii), the expenditure of $4.4 million in 2000-01 and $4.9 million in 2001-02 and in 2002-03 represents the combined staff costs of the ten participating departments and agencies in providing on-going support to ESD operation. The departments and agencies will meet these requirements from within their existing resources.

Requirement for additional funding

33. We have drawn up the financial model of the ESD scheme on the basis that there will not be any form of Government investment in the ESD operator. However, the response to our invitations for expression of interest on the scheme earlier this year suggests that potential ESD operators may look for some form of Government investment in the project in order to strengthen their business case and to reduce their initial capital outlay. This would also help to lower the transaction fees to be paid by Government. Subject to the approval of the commitment which we now seek to create and the proposals which we would receive in the tender exercise, we may need to seek the approval of Members for an increase in the commitment to be created or to create a new commitment for making a co-investment in the ESD scheme with the selected operator. We will examine the requirement after the tenders have been received, and we will make another funding submission to this Committee where necessary, before we award the contract to the selected operator.

Implementation plan

34. Our plan to implement the ESD scheme will tie in with that to be proposed by the ESD operator in order to achieve our aim of providing services for the first phase of the scheme in the latter half of 2000.

Future phases of ESD scheme

35. We will examine the development of future phases of the ESD scheme to cover other Government services after the implementation of the first phase of the scheme. We will specify in the tender Government's discretion to introduce subsequent phases within the contract period of the ESD operator.

BACKGROUND INFORMATION

ESD related issues

36. To tie in with the implementation of the ESD scheme and to facilitate the development of electronic commerce in Hong Kong, we consider it necessary to have locally established CAs to provide security and trust in the conduct of electronic transactions under a public key infrastructure. While we will leave it to the market to decide on the number of CAs to be established in Hong Kong, we accept that Government should take an active lead in the establishment of the public key infrastructure. We have thus invited the Hongkong Post to serve as the public CA in Hong Kong. Our target is to establish the local public CA by the end of 1999 to tie in with the implementation of the first phase of the ESD scheme. We would welcome the establishment of CAs by other private bodies to serve the needs of the community.

37. We also need to establish a clear legal framework in order to provide certainty in the conduct of electronic transactions. This is essential to promote and facilitate the development of electronic commerce in Hong Kong. The framework should deal with issues such as the legal recognition of electronic records and digital signature, and the establishment of CAs. We will introduce a bill into the Legislative Council in the first half of 1999 to establish the legal framework for electronic transactions.

Expression of interest

38. We invited expression of interest in June this year so as to gauge the interest in the private sector in taking part in establishing the ESD system and taking up the role of the ESD operator. The exercise ended in mid-August. We received a total of 44 submissions from various local and overseas companies. Many of these companies have solid experience in implementing similar systems elsewhere. Based on the results of this exercise, we anticipate that there would be a good response to the ESD tender.

Briefing for Legislative Council Panel

39. We will brief the Legislative Council Panel on Information Technology and Broadcasting on this funding application at its meeting to be held on 14 December 1998 before the Finance Committee. With Members' approval of the creation of the new commitment for the first phase of the ESD scheme, we will commence the tendering process as soon as possible.

Information Technology and Broadcasting Bureau
December 1998

Enclosure 1 to FCR(98-99)55

There are seven generic types of transactions which can be covered under the Electronic Service Delivery scheme -

1. changing clients' particulars, e.g. address;

2. booking services or appointments;

3. acquiring documents and services;

4. making payments;

5. obtaining information;

6. submitting applications and returns, providing feedback, e.g. making complaints, suggestions, etc.; and

7. monitoring progress, e.g. checking the status of an application, etc.

Enclosure 2 to FCR(98-99)55

1. Viability - Electronic Service Delivery (ESD) services should be economically viable to departments and agencies which use the scheme to provide their services to the community on-line.

2. Financial transactions - financial transactions, e.g. the payment of Government bills, etc. are an important element of the ESD scheme. The ESD operator should have sufficient capacity and capability to handle financial transactions through establishing appropriate mechanisms with financial institutions. ESD service will not accept cash payment. The ESD operator does not have to act as a financial intermediary. All payments should be directed through available banking mechanisms to the appropriate Government accounts.

3. Ease-of-use - ESD applications should be designed for maximum ease of use. Applications should be developed with a wide target audience in mind. There should be a user-friendly client interface. A fast system response has to be provided.

4. Accessibility - a key objective of the ESD scheme is to improve the accessibility of public services. ESD service should operate 24 hours a day and 7 days a week. It should also provide access to Government transactions and information at locations which are readily accessible to the public.

5. Bilingual interface - ESD service should provide a bilingual interface so that the public can obtain the services readily through either the English or the Chinese language medium. In respect of the Chinese language interface, the ESD operator should be able to handle various types of internal codes used at different platforms within Government and in other participating agencies.

6. Reliability - reliability is required to encourage the use of ESD services and to ensure client satisfaction. Adequate back-up will be mandated in the design of ESD operational centres, equipment and communication network. Extensive testing and pilot runs will have to be performed before actual service delivery. Proven reliability at the early stage of implementation will have a significant positive impact on the success of the scheme.

7. Security - ESD services will be used to conduct a wide range of transactions involving personal information and payment. The ESD system should ensure that these transactions are secure and that the privacy of clients using ESD services is protected. The security of departments and agencies which will use the ESD system to provide services must not be compromised.

8. Scope - we plan to establish ESD services which will support the requirements of the public sector initially. The services of the private sector will be covered at a later stage. The ESD system should have adequate scope to meet these requirements.

9. Ownership - Government intends to contract for ESD services. We do not intend to purchase any major infrastructure for the operation of the ESD scheme. The ESD operator should provide the necessary infrastructure.

10. Scalability - ESD services must be capable of scaling up to cater for a large variety and possibly substantial and rapid increases in the volume of transactions and information. ESD services must prove scalability without the requirement for redesign.

11. Consistency - we will develop a variety of applications across a range of delivery channels for the provision of ESD services. Each ESD service or application should, as far as possible, be made available across various ESD delivery channels using a consistent user interface.

12. Modular solutions - ESD services must offer modular solutions, and provide suitable assurance that the system would allow cost-effective and timely modifications to support the introduction of additional delivery channels in future.

13. Data management - a well designed interface strategy and a defined and structured approach are necessary to access and update data from a disparate range of databases in an integrated form.

Enclosure 3 to FCR(98-99)55

1. Inland Revenue Department

Tax payment; submission of simple tax return (for individuals only); interactive tax enquiry system, e.g. tax amount, due date, etc.; change of taxpayers' particulars, e.g. address, etc.; application for business registration certificate (for sole proprietor only) or copy of extracts of the business register; and purchase of tax reserve certificates.

2. Immigration Department

Booking appointment for identity card registration; application for search and copy of birth/death/marriage certificate; notification of pre-mature termination of contracts of imported workers/foreign domestic helpers; and general enquiry and information look-up.

3. Labour Department

Job vacancy database search by job seekers; submission of job vacancy by employers; search of suitable job applicants by employers; and general enquiry.

4. Transport Department

Application for renewal of driving licence and vehicle licence; application for reservation of non-special registration mark for auction; road test appointment booking for repeaters; application for certificate of vehicle particulars; vehicle examination appointment booking; and change of address for driving licence or vehicle licence holder.

5. Registration and Electoral Office

Voter registration; change of address of registered voters; and general enquiry, e.g. voter status, polling station, etc.

6. Rating and Valuation Department

Change of ratepayers' or rent-payers' particulars, e.g. name and address, etc.; and general enquiry, e.g. rates and Government rent account balances, etc.

7. Industry Department

Business licence information enquiry; on-line application for the various financing schemes for industry; and small and medium sized enterprise information and enquiry service.

8. Social Welfare Department

Application for senior citizen card and volunteer schemes registration; application for participation in senior citizen card scheme, obtaining information about parties participating in senior citizen card scheme and organisations granted with charitable fund-raising permits; and general information look-up.

9. Treasury

Payment of Government bills - rates, Government rent and water charges.

10. Hong Kong Tourist Association

Computerised map enquiry system for tourists; and tourist information look-up.