File Ref: TBCR 1/1017/99




At the meeting of the Executive Council on 14 September 1999, the Council ADVISED and the Acting Chief Executive ORDERED that the Mass Transit Railway Bill at Annex A should be introduced into the Legislative Council, to partially privatize the Mass Transit Railway Corporation (MTRC).


Justification for Government Ownership of MTRC

2. Established as a statutory corporation in 1975 by the Mass Transit Railway Corporation Ordinance (Cap. 270), MTRC is mandated to construct and operate a mass transit railway system having regard to the reasonable public transport requirements of Hong Kong. Cap. 270 requires MTRC to operate on prudent commercial principles.

3. At present the Government wholly owns MTRC. Over the years Government equity has helped propel the expansion of the mass transit railway network, a major infrastructure project with massive capital investment requirement and substantial initial debt. To-date, MTRC runs one of the most efficient and profitable railway systems in the world. Its solid financial performance and sound corporate management have earned MTRC credit ratings identical to the sovereign rating of HKSARG.

Benefits of Privatization of MTRC

4. On 3 March 1999, the Financial Secretary announced in his Budget Speech the intention of the Government to privatize a substantial minority share of MTRC through an Initial Public Offering.

5. MTRC has demonstrated how a Government-owned entity can be run successfully under prudent commercial principles. We believe the introduction of private ownership will reinforce MTRC's commitment to competitiveness and efficiency. Privatization will bring strengthened market discipline to the running of the railway, promoting even greater levels of efficiency. It will also broaden MTRC's access to sources of capital and financing alternatives for new railway projects. This will facilitate the development of rail transport in Hong Kong.

6. Privatization of MTRC will also provide an attractive opportunity for the people of Hong Kong to participate in the success of a solid, well-managed company with strong growth potential and which features in the daily lives of many. The listing of a high quality, heavily capitalized company like MTRC will add stability and diversity to the Hong Kong stock market. A high-profile and successful public offering will help buttress Hong Kong's status as an international financial centre. It is also a practical demonstration of the Government's commitment to a free market economy. In addition, the public offering will generate proceeds for the General Revenue and provide a useful boost to Government finance in the medium term.

Government to Retain Majority Shareholding

7. The Government intends to remain as the majority shareholder after privatization (holding not less than 51% of the shares). We believe a continuing Government shareholding will be welcomed by the commuting public and by local and overseas investors and rating agencies who will see it as our support for MTRC's continuing role in the provision and expansion of the transport infrastructure in Hong Kong. This will help MTRC to maintain its credit ratings at the same level as the Government, thus enabling it to continue to access cost-effective financing.


Fare Regulation

8. It is important that, after privatization, MTRC should continue to retain fare autonomy which will enable it to invest in the development and maintenance of the railway system. Indeed the loss of fare autonomy may run the risk of rendering MTRC shares unmarketable and frustrate the plan for privatization. Under the existing Mass Transit Railway Corporation Ordinance (Cap. 270), MTRC is empowered to determine its own fares. In practice, it has to have regard to affordability, acceptability, and the fare levels of its competitors. MTRC also conducts consultation with the LegCo Panel on Transport and the Transport Advisory Committee on its annual fare review. Since the commencement of operations in October 1979, MTRC's average fare increase has been 7.5% per annum, which is lower than the average increase in Consumer Price Index (A) of 8.2% for the same period. In the light of the difficult economic conditions and low inflation, MTRC has not raised its fares since 1 September 1997.

9. For its part, the Government will continue to have an important role to play in promoting healthy competition between MTRC and other public transport modes so as to ensure that market forces act as a constraint on fare increases. We are committed to maintaining a level playing field and competitive environment to ensure that the commuting public will have a choice of competing transport modes at affordable prices.

New Rail Projects

10. As urbanization intensifies, railway extensions should become increasingly preferable to road development in providing mass public transport. The former carry many more commuters, take less land and are more friendly to the environment. Privatization will reinforce the commercial practice and discipline of MTRC in taking on new rail extensions that can compete with other modes of public transport and produce reasonable financial returns.

11. In the event that public interest and transport policy require MTRC to develop commercially unviable rail projects on social and economic grounds, Government is prepared to bridge the gap so that these projects can provide a commercial return. Such support must be separately identified and justified publicly, but could take the form of property development rights or contribution to railway infrastructure.

12. The Government will continue to have a major role to play in awarding new rail projects between a partially privatized MTRC and the KCRC which will remain 100 percent Government-owned. Direct competition between them will not naturally arise in cases of extension of the existing network as whoever operates the main network will have a distinct advantage from the system integration point of view. Projects which are entirely separated from any existing networks will be awarded taking into account long term transport planning considerations, the ability of MTRC and KCRC to undertake the new project and other relevant transport policy considerations at the time. We believe it is in the public interest to promote as far as practicable competition between the two rail operators on a completely equal footing, regardless of ownership considerations.

Land Issues

13. Property development has made an important contribution to the financial viability of MTRC's rail projects. MTRC has played a useful role in the property developments over its railway stations and has established new communities along the railway footprint. It undertakes planning for the property developments, building a substantial part of the foundations and providing other common infrastructure. The property developments also help provide early patronage to the railway system. We believe MTRC should be allowed to continue its role in integrating railway and property developments. The existing policy of granting property development rights, where appropriate, on top of stations and depots will continue.


14. The Government will enter into an Operating Agreement with the privatized entity, called MTR Corporation Limited (MTRCL), which is legally binding. The Operating Agreement will provide for all the detailed terms of the franchise, including the monitoring process by the Government and fare setting process by the Corporation. MTRCL will be responsible for maintaining a proper and efficient service. The Government will have the power to request MTRCL to review its operational arrangements and suggest improvements to MTRCL where appropriate. MTRCL will be required to comply with the Government's requests for such reviews, to give due consideration to the Government's suggestions, and to advise the Government on its reasons if it decides not to adopt them. The provisions in the Operating Agreement for MTRCL to set fares will include the need for MTRCL to take into account the acceptability to the public as gauged through consultation with the LegCo Panel on Transport and the Transport Advisory Committee.

15. The Operating Agreement will stipulate the performance levels required of MTRCL and provide for the mechanism for the Government to monitor services of MTRCL on the basis of these performance levels. Substantial or persistent breaches of these performance levels might be cause for imposition of penalties, suspension or revocation of franchise. There will also be other indicators which measure the quality of service and serve to point to areas of improvement in the delivery of service. A summary of the principal headings of the Operating Agreement is at Annex B.


16. MTRC in its present form as a statutory corporation is not an appropriate vehicle for private ownership. Prior to privatization, we need to incorporate the new entity, i.e. MTR Corporation Limited as a public limited company under the Companies Ordinance (Cap. 32). All the assets and liabilities of MTRC will be vested in the new body corporate by way of the Mass Transit Railway Bill (The Bill). The Bill, once enacted, will repeal the existing Mass Transit Railway Corporation Ordinance (Cap. 270).

17. The new legislation will grant the new Corporation an exclusive franchise for running the existing MTR network for an initial term of 50 years, i.e. there will be a new franchise for the entire MTR network. We believe 50 years is appropriate as the base period for the calculation of the Internal Rate of Return for MTR projects is 40 years from commissioning whereas design and construction usually take seven to eight years. A 50-year franchise will also provide adequate incentive for MTRCL to continue to invest in the maintenance, upgrading and extension of the railway system. The Bill will provide for the extension of the franchise, and for suspension and revocation of the franchise in case of substantial breach of the franchise terms, as in the case of other public transport franchises like buses and ferries.

18. All the powers of the Hong Kong Railway Inspectorate in the existing Mass Transit Railway Corporation Ordinance (Cap. 270) which cover all aspects of monitoring of railway safety and investigation of railway incidents will be preserved in the Bill.

The Bill

19. The Bill comprises ten parts:

    Part I: Preliminary

    Clause 1 provides for the short title and commencement of the Bill as enacted. Clause 2 provides for the definition of certain terms used in the Bill.

    Part II: Grant and Extension of Franchise

    Clause 4 provides for the grant of a franchise to MTRCL to operate the railway for a term of 50 years and to construct any extension to the railway. This provision also makes reference to the Operating Agreement entered into between the Government and MTRCL which contains the terms and conditions of the franchise. Clause 5 provides for the extension of MTRCL's franchise by the Chief Executive in Council.

    Part III: Performance under the Franchise

    Clause 9 requires MTRCL to maintain a proper and efficient service at all times in accordance with the Bill and the Operating Agreement. The Secretary for Transport is empowered to ask for information (clause 10) and records (clause 11) to enable him to monitor MTRCL's compliance with its obligations under the Bill and the Operating Agreement. Clause 14 allows the Chief Executive in Council to impose financial penalties on MTRCL for any substantial or persistent breach of the Bill or the Operating Agreement.

    Part IV: Suspension, Revocation and Expiry of Franchise

    Clause 15 provides for the suspension of the franchise in the case of an emergency or substantial breakdown in the operation of the railway and for the compensation payable to MTRCL in that event. Clauses 16, 17 and 18 provide for the revocation of the franchise in the event of default by MTRCL as defined in those provisions. Clause 19 authorizes the Government to take possession of railway property kept by MTRCL upon revocation or expiry of the franchise and to use or dispose of such property as it sees fit. The purpose of this provision is to give Government the powers necessary to ensure the minimum disruption to railway services in the event of revocation or expiry of MTRCL's franchise. Clause 20 provides for the compensation payable in respect of railway property taken or used under clause 19.

    Part V: Compensation

    Part V provides for the determination of compensation by an arbitrator should Government and a claimant fail to agree on the amount of compensation due to the claimant, and for matters related to payment of such compensation.

    Part VI: Safety of Railway

    Clauses 26 and 27 provide for the appointment, duties and powers of railway inspectors. Clause 28 provides for the Secretary for Transport to require MTRCL to remedy defects in the railway which are likely to cause a risk of injury to any person.

    Part VII: Transport Interchanges

    Clauses 31 and 32 provide for the delineation and management of transport interchanges by MTRCL.

    Part VIII: Regulations and By-laws

    Clause 33 provides for the making of subsidiary legislation by the Secretary for Transport to regulate matters under the Bill. Clause 34 provides for the making of bylaws by MTRCL to regulate the conduct of passengers using the railway.

    Part IX: Vesting of Property and Transitional Arrangements

    Clause 37 provides for the vesting of the whole of the property, rights and liabilities of MTRC in MTRCL. Clauses 38 to 41 provide for MTRCL to be treated, in relation to property etc. so vested, in all respects as if it were MTRC. Similar provisions are made in respect of company accounts (clause 43), taxation matters (clause 45) and interests in land (clause 47). Consistent with this approach, clause 46 exempts MTRCL from stamp duty in respect of property etc. vested under Part IX. Clause 42 provides for the holding of shares in MTRCL by the Financial Secretary Incorporated. Clause 52 provides for the dissolution of MTRC at an appropriate time.

    Part X: Miscellaneous

    Clause 53 provides for a right of appeal to the Chief Executive in Council against decisions of the Secretary for Transport and other public officers made under certain provisions of the Bill. Clause 54 and Schedule 2 exempt MTRCL from the operation of certain laws. Clause 58 allows for the costs related to the sale of shares in MTRCL or the listing of shares in MTRCL on a stock exchange to be deducted from the proceeds of the sale or listing before being paid into general revenue. Clause 59 allows MTRCL's shares and debt securities to be treated as authorized investments for the purposes of the Trustee Ordinance (Cap. 29). Clause 63 provides for the repeal of the Mass Transit Railway Corporation Ordinance (Cap. 270) and for the subsidiary legislation and notices under that Ordinance as set out in Schedules 3, 4 and 5 to be adopted as subsidiary legislation and notices under the Bill. Clause 64 and Schedule 6 provide for consequential amendments to other enactments.

Legislative Timetable

20. The legislative timetable will be :

Publication in the Gazette24 September 1999
First Reading and Commencement of Second Reading Debate 13 October 1999
Resumption of Second Reading Debate, Committee Stage and Third Reading To be notified

Human Rights Implications

21. The Department of Justice advises that the Bill is consistent with the human rights provisions of the Basic Law.


22. We have not set any particular deadline for the Initial Public Offering, although, market conditions permitting, for budgetary reasons, we prefer that it should take place in 2000-01. For the purpose of fiscal planning, we are assuming that the Government would receive proceeds of $ 30 billion through the sale of the stock during 2000-02. This will provide a useful boost to Government finance in the medium term. The actual proceeds will however depend on a number of factors, including valuation, market conditions and the size of the offering. We propose to deduct costs related to the sale of shares and listing from the sale proceeds of the public offering and have included a provision in the Bill to effect this.

23. At present, the Chief Inspecting Officer (Railways) is responsible for monitoring the safety of the Mass Transit Railway. Transport Department is not involved in the day-to-day monitoring of the MTR services. The Department will need to gradually expand its expertise and capability to monitor the passenger services of the privatized MTRC. Initially the Transport Department will create a small unit through internal redeployment to absorb the additional workload generated by the Bill. It will be necessary to strengthen this unit through bidding for additional resources in the usual way. There are no other additional financial and staffing implications.


24. The privatization of MTRC will reinforce the Government's commitment to a free market economy and competition. MTRCL's access to equity from the market will mean that Government resources which would otherwise go into funding of railway projects can be diverted to other priority areas of investment. The listing of MTRCL will help diversify the local stock market, which in turn will help enhance the attraction of Hong Kong as an international financial centre. World-wide experience suggests that privatization improves corporate efficiency and enhances productivity.


25. The Transport Advisory Committee (TAC) and the LegCo Panel on Transport have been consulted on the privatization of MTRC on 22 June 1999 and 25 June 1999 respectively.


26. A press release on the publication of the Mass Transit Railway Bill will be issued on 24 September 1999. A spokesman will be available to answer media enquiries.


27. All inquiries on the contents of this Brief should be directed to Mr Roy TANG, Principal Assistant Secretary, Transport Bureau at Tel: 2189 2183 or by fax at 2573 5246.

Transport Bureau
24 September 1999

Annex B

Principal Headings of the Operating Agreement between
Government of the Hong Kong Special Administrative Region
MTR Corporation Limited

(Note : The Government and the Mass Transit Railway Corporation are deliberating the contents of this Operating Agreement.)


The Preamble will state that the Operating Agreement is made pursuant to the Mass Transit Railway Ordinance (the "MTR Ordinance") and that the existing Memorandum of Agreement is replaced by this new Operating Agreement.


1. The new Operating Agreement will contain appropriate interpretation provisions.


2. Whilst the MTR Ordinance enables the Corporation to apply for, and Government to grant, extensions of the franchise, the detail relating to this procedure and the factors to be taken into account (including capital expenditure incurred or to be incurred by the Corporation) will be contained in the Operating Agreement.


Electric Power Supply

3.1 The Corporation shall maintain more than one source of electric power supply to all parts of the railway so that, in the event of a failure of one source, another source shall be capable of maintaining a safe and tolerable environment for all persons using the railway.

Use of Electrical Energy

3.2 The Corporation shall take all proper precautions in the use of electrical energy.

Control Centres

3.3 The Corporation shall provide and maintain adequate facilities in the control centres for the safe regulation, control and direction of trains and persons using or employed in the operation of the railway.

Protection against Flooding

3.4 The Corporation shall provide and maintain adequate means to prevent flooding of the railway premises.

Provision of Depots and Equipment

3.5 The Corporation shall provide and maintain adequate depot facilities for the stabling, cleaning, inspection, maintenance and repair of rolling stock. The Corporation shall develop and maintain suitable arrangements for the maintenance and repair of all rails, overhead line equipment, tunnels, viaducts, stations and other structures, infrastructure, plant and equipment used in connection with the operation of the railway.

Monitoring of Environmental Conditions

3.6 The Corporation shall monitor and record the environmental conditions throughout the enclosed parts of the railway and shall provide and maintain measuring and recording instruments.

Lighting and Ventilation

3.7 The Corporation shall provide and maintain adequate lighting in areas of the railway premises accessible to the public and where persons are at any time required to work. The Corporation shall provide and maintain adequate ventilation in enclosed areas of the railway premises and in areas of the railway premises over which the Corporation can reasonably exercise climatic control and which are not naturally ventilated, in each case to which the public has access.

Police Accommodation

3.8 The Corporation shall provide and maintain adequate accommodation and facilities for members of the Hong Kong Police Force on duty on the railway and railway premises. The Hong Kong Police Force will continue to provide a police service for the railway and railway premises in the same manner as that provided as at the date of the Operating Agreement.


Disruptions to Train Services

4.1 The Corporation shall report to the Commissioner for Transport and the Commissioner of Police with the least practicable delay:

  1. the emergency closure of any station or any part of the railway during normal operational hours;

  2. any anticipated emergency closure of any station or any part of the railway that may affect the normal operation of the railway; and

  3. any interruption or delay in train service which might affect the safe conveyance of passengers travelling or wishing to travel on the railway.


4.2 The Corporation shall notify in writing the Commissioner for Transport of the train service arrangements in respect of hours of operation, frequency of train service, composition of trains deployed and carrying capacity per car. The Corporation shall notify the Commissioner for Transport any material modification to any of the train service arrangements together with explanations for any such proposed modification and the Corporation's assessment of the likely impact on passenger services.

Railway Cleanliness

4.3 The Corporation shall keep the railway premises in a clean and sanitary state.

Passenger Environment

4.4. The Corporation shall provide a comfortable passenger environment by maintaining reasonable standards for temperature and ventilation in enclosed areas of the railway premises and in areas of the railway premises over which the Corporation can reasonably exercise climatic control and which are not naturally ventilated, in each case to which the public has access.


4.5 The Corporation shall provide and maintain adequate and efficient means of communication between its control centres and all stations and depots, trains and such other places including Transport Department, Police, Fire Services Department and power companies as are essential to the safe operation of the railway.

Noise and Vibration

4.6 The Corporation shall ensure that the noise and vibration emitted due to the operation of the railway are kept to a level consistent with proper maintenance and safe operational practices.

Collection of Fares and Handling of Tickets

4.7 The Corporation shall provide and maintain adequate staff, automatic equipment, tickets and facilities for the effective and efficient collection of fares.

Ticket and Cash Handling

4.8 The Corporation shall ensure that all ticket, Smart Card and cash handling facilities are at all times safe and secure.

Performance Requirements

4.9(1) The Corporation shall maintain a level of service that at least meets the Performance Levels specified in a schedule to this Operating Agreement. Each "Performance Level" is an agreed acceptable threshold level of performance that must be met by the Corporation.
(2) The Performance Requirements shall be jointly reviewed by the Corporation and the Commissioner for Transport annually and upon request by the Corporation, taking into account particular circumstances, and may be changed.
(3)The Corporation and the Commissioner for Transport shall agree specific Performance Requirements for the initial two years of operation of any new lines.

Force Majeure

4.10 The Corporation will not be regarded as having failed to meet a Performance Level if the failure has resulted from the occurrence of a "force majeure" event. The Corporation shall use its reasonable endeavours to mitigate, prevent and remedy any "force majeure" event.

Customer Service Pledges

4.11(1) The Corporation shall establish and publish, on an annual basis, Customer Service Pledges. The Corporation shall publish, on a quarterly basis, data in relation to its performance against the Customer Services Pledges together with explanations, as appropriate. The Customer Service Pledges are voluntary targets and are not themselves performance obligations.
(2)The Corporation will publish data on passenger complaints (on a quarterly basis) and on accidents and serious injuries and fatalities (on an annual basis).

Measuring Customer Satisfaction

4.12 The Corporation shall develop and maintain arrangements for measuring passenger satisfaction, including, passenger satisfaction surveys, and the method and extent of publication of the survey results. The Corporation shall furnish the Commissioner for Transport with a report on the outcome of any such arrangements.

Handling of Passenger Complaints and Suggestions

4.13 The Corporation shall develop and maintain a system for handling passenger complaints and suggestions. The Corporation shall furnish the Commissioner for Transport an annual report summarising the complaints and suggestions received by the Corporation in relation to railway services and any action taken by the Corporation.

Signs and Passenger Information

4.14 The Corporation shall provide and maintain adequate illuminated signs, in Chinese and English, in every station for the information and direction of the public and to enable passengers to proceed safely and correctly with the minimum of delay. The Corporation shall display on railway premises and its approaches appropriate signs and information in Chinese and English on but not limited to, MTR by-laws, services timetables and fares. The Commissioner for Transport may request the Corporation to review the provision, content or any other matter relating to signs and passenger information in relation to any station, line or train.

Request for Review

4.15 The Commissioner for Transport may request the Corporation to review its arrangements in respect of the operation of its railway passenger services. The Corporation shall comply with such a request for review and shall inform the Commissioner for Transport of the outcome within a period that is reasonable in the circumstances. The Commissioner for Transport may request the Corporation to consider specific suggestions for changes in the operation of its railway passenger services. The Corporation shall give due consideration to any such suggestions for changes (but shall not be obliged to make any such changes) and shall notify the Commissioner for Transport of its intended course of action, giving reasons for any inability to adopt the suggestions for changes.



5.1 The Corporation shall design, construct, operate and maintain the railway having due regard to the safety of the railway and of persons using or employed on the railway to the reasonable satisfaction of the Chief Inspecting Officer. The Corporation shall establish a safety management system to review control and minimize safety risks as far as reasonably practicable.

Instruction Manuals

5.2 The Corporation shall provide the Chief Inspecting Officer with copies of such manuals of instruction and documentation relating to procedures in respect of safety, emergency and security matters in connection with the railway premises. In the preparation and major revision of any manual of instruction required under regulation 9(a) of the MTR Regulations, the Corporation shall consult the Chief Inspecting Officer if such instruction have safety implications, and the Commissioner of Police, the Director of Fire Services and the Chief Inspecting Officer if such instructions have safety implications and relate to fire fighting and rescue.

Independent Safety Expert

5.3 The Corporation shall employ an independent expert to review its safety management system at a regular interval of not more than five years.

Rescue and Breakdown Equipment

5.4 The Corporation shall provide adequate vehicles and equipment for the safe and speedy recovery of defective trains and equipment and for the rescue of passengers and persons employed on the railway. The Corporation shall ensure that such vehicles and equipment are at all times effective and maintained in an efficient working condition and, if necessary, are attended and operated by persons trained to carry out the duties assigned to them and that such persons remain competent at all times.

Maintenance Procedures

5.5. The Corporation shall set up procedures for the maintenance of facilities, systems and trains to minimize safety risks as far as reasonably practicable.

Provision of Railway Staff

5.6 The Corporation shall have on duty railway staff in such numbers and with such training and experience as will ensure the proper control and operation of the railway and the safety of persons using or employed on it. The Corporation shall not knowingly permit any employee to be on duty whilst under the influence of alcohol or any drug or substance which would or may tend to impair the adequate performance of his duties, or who is otherwise unfit to perform his duties for any reason.

Opening of the Railway and New Lines

5.7 The Corporation shall not open any new part of the railway or bring into use any additional major railway facilities, equipment and systems which have an impact on safety until the Chief Inspecting Officer is satisfied that the same is safe for public use. The Corporation shall perform any and all such tests as may reasonably be requested and to forward all results of such tests to the Chief Inspecting Officer. The Corporation shall, at such reasonable times, permit the Chief Inspecting Officer to carry out any inspection, examination or test he considers necessary and provide such resources and assistance as may be reasonable in the circumstances to enable him to carry out such inspections, examinations and tests.

Contingency Plans

5.8 The Corporation shall develop and maintain contingency plans to be implemented in the event of a breakdown, accident or emergency on any part of the railway premises which cover announcements, broadcasting of messages through media, evacuation of passengers, supply of alternative transport services and any particular arrangements for fare collection.


6. This section will contain provisions addressing the framework for the grant by Government to the Corporation of:

  1. land required for the operation (and extensions that may be agreed) of the railway;

  2. land for property development by the Corporation in connection with railway development;

  3. land required for essential infrastructure works relating to the railway; and

  4. basis of assessing premium amounts and manner/timing of payment.


7. This section will contain provisions which address the following objectives:

  1. annual publication by the Corporation of a statement of its own anticipated future network capacity requirements;

  2. building new lines only on prudent commercial principles;

  3. ensuring a level playing field and equal treatment with other potential competitors in the award of new railway projects and extensions; and

  4. providing a clear framework for new projects.


8. This section will contain provisions which reflect and codify the existing mechanism for determining fares, including:

  1. consideration by Corporation of public acceptance of any proposed fare changes, based on passenger surveys;

  2. consultation with Transport Advisory Committee;

  3. consultation with Transport Panel of the Legislative Council;

  4. decision on fare changes to be made by board of the Corporation;

  5. following the above, formal notification by the Corporation to each of Transport Advisory Committee and Transport Panel of the new fare levels; and

  6. public announcement by the Corporation of the new fare levels.


9. This provision will address the compensation that is payable by Government to the Corporation if Government has taken possession of property of the Corporation following a revocation of the franchise under the MTR Ordinance or following the expiry of the franchise.


10. This section will contain provisions which address dispute settlement procedures.


11. This provision will address Government's power to resume the Corporation's running lines which is contained in the running line leases entered into between Government and the Corporation.


12. During the period commencing five years before the expiry of the franchise period and during the implementation of any revocation procedure under the MTR Ordinance, the Corporation will not take any action that would frustrate the transition to any successor franchisee of the right to operate the railway. The Corporation shall not be precluded from taking any action in good faith and in the ordinary and usual course of its business.


13. This section will contain a provision requiring the joint review by the parties of the terms contained in the Operating Agreement.


14. The Corporation shall maintain records in respect of the matters specified in the Operating Agreement. Subject to the Government and the Corporation reaching agreement, the Corporation shall maintain records in addition to those required under the MTR Ordinance or specified in the Operating Agreement and will furnish copies to the Secretary and permit the Secretary to inspect them in the manner prescribed in, and subject to the terms of, the MTR Ordinance.


15. The Corporation shall submit to the Government a report prepared by its external auditors, on an annual basis, as to whether or not, during that period, in the opinion of the external auditors, the Corporation had in place internal control systems and procedures which were adequate to enable, as far as practicable, the Corporation to measure and record, in all material respects, its compliance with the Performance Levels and its calculation of the Customer Service Pledges and, if the opinion of the external auditors is that those control systems and procedures were not adequate, the nature and extent of any inadequacies.

Transport Bureau
September 1999