Legislative Council

LC Paper No. LS 8/98-99

Paper for the House Committee Meeting
of the Legislative Council
on 10 July 1998

Legal Service Division Report on
Resolution under section 5(3)(b) of the
Public Bus Services Ordinance (Cap. 230)

The Secretary for Transport has given notice to move a motion under section 5(3)(b) of the Public Bus Services Ordinance (Cap. 230) ("the Ordinance") at the Legislative Council meeting to be held on 22 July 1998. The purpose of the motion is to seek the Legislative Council's approval to exclude the application of the profit control scheme to the new franchise granted by the Chief Executive in Council to the New World First Bus Services Limited ("the New Bus").

2. Under section 5(3)(b) of the Ordinance, a franchise granted by the Chief Executive in Council shall, except where the Legislative Council by resolution excludes the application of all or any of the provisions of the profit control scheme, be subject to the profit control scheme. The profit control scheme, which is set out in sections 27, 28, 29 and 31 in Part V of the Ordinance, limits the profit that a bus company may make in an accounting year commonly known as the permitted return by reference to a percentage per annum on its average net fixed assets as specified in its franchise. Under this scheme, profit exceeding the permitted return in any year will be retained in a development fund. When profit falls below the permitted return, the company may make good the shortfall by drawing money from the development fund, thereby reducing pressure on fares.

3. According to the draft speech of the Secretary for Transport, the Government's current policy for processing fare increase applications is to take various factors into account, particularly operating costs, performance and public acceptability rather than to provide for a profit level based on a percentage rate of return on average net fixed assets. Because of this practice, the Government's approach has been to exclude all references to a profit control scheme when negotiating new bus franchises.

4. The new franchise, which will take effect from 1 September 1998, will confer upon the New Bus the right to operate a public bus service on 88 routes specified in the Schedule of Routes (New World First Bus Services Limited) Order 1998 (L.N. 238 of 1998) and in any subsequent order made by the Chief Executive in Council.

5. If passed, the effect of the resolution is that the New Bus's new franchise, similar to franchises granted to other bus companies, will not be subject to the profit control scheme.

6. The legal and drafting aspects of the draft resolution are in order.

Prepared by

Fung Sau-kuen, Connie
Assistant Legal Adviser
Legislative Council Secretariat
6 July 1998