Press Release

 

 

LC: Privatisation of Government departments

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Following is the English translation of the speech by the Financial Secretary, Mr Donald Tsang, in the motion debate on "Privatisation of Government departments" in the Legislative Council today (Wednesday):

Madam President,

It has always been Hong Kong's objective to keep the Government small. We believe that to facilitate the development of a dynamic and flourishing economy, the Government should encourage free competition and create as many business opportunities for its citizens as possible. We should not compete with our own people in providing services to the public.

2. In addition, resources are always limited. With the rapidly changing environment and the ever rising expectations of the community, notwithstanding that as a whole we have a very efficient Civil Service, there may exist a small part of it whose performance is not very satisfactory, to satisfy the demands of the public, we therefore need to look for ways to further improve the efficiency of public services and to optimize the use of our limited resources. It is with these objectives in mind that we have encouraged private sector participation in the provision of public services wherever suitable, to go forward with corporatisation of government activities, and to privatise certain public corporations where market conditions are appropriate.

Private sector participation

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3. Private sector participation in the provision of public services is nothing new in Hong Kong. We have the Mass Transit Railway Corporation and the Kowloon-Canton Railway Corporation running rail systems, we have tunnels built through Build-Operate-Transfer contracts, we have waste facilities installed and managed through Design-Build-Operate contracts, and we have contracted out professional services and the management of Government tunnels, carparks and office buildings.

4. Experience shows that private sector participation can bring a number of benefits. These include -

(a) improvements in the quality of services as suppliers compete to exceed the explicit performance targets for service standards;

(b) more efficient and responsive services as service providers do not need to conform with civil service rules and procedures;

(c) freeing up of public funds for other essential services and immediate reduction in the overall cost of public services;

(d) greater management flexibility as the Government can now focus on the "core business", i.e. formulating policy, overseeing its implementation and protecting public interests; and

(e) stimulation of the private sector as the market responds to new demand for services previously provided by the pubic sector.

5. The public services in Hong Kong are wide-ranging, diversified and manpower-intensive. When we consider private sector participation, we always keep in mind the following important lessons from our experience -

(a) ensuring that the objectives are clear, that is, we want better service and greater efficiency;

(b) we must properly address the staff's concerns, particularly on the possibility of losing jobs;

(c) we must put in place a proper infrastructure, especially in the provision of policy guidance, a proper accounting system and streamlined procedures; and

(d) there must be an external market in existence. We should not over-estimate the ability and the willingness of the private sector. Initial prompting from the Government should be provided, if necessary.

6. Based on the above considerations, we have been working on a number of projects. These include encouragement of greater private sector participation in the provision of residential care services for the elderly, outsourcing of the meal delivery service under the Home Help Service, contracting out of the driver and vehicle licensing functions, outsourcing of the by-hand delivery of open and restricted documents, outsourcing of the non-core activities in the Intellectual Property Department and identification of options for private sector participation in the provision of water supply service.

Corporatisation

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7. As we enter into the 21st century, we must make sure that we are providing services that meet modern day requirements and take full advantage of modern technology and techniques. We must not be complacent in the quest for value for money. The traditional vote funded method of departmental operation has served us well for many years, is still appropriate in certain circumstances. But in some cases its time has passed, and we must move on. In addition to setting up trading funds and contracting out more services, we also need to consider types of changes to the government structure. Depending on circumstances, we may need to change the way some public services are provided. Corporatisation is one of the means to achieve this.

8. By turning certain appropriate government services into public corporations and running them on commercial principles, we see that this will produce a number of benefits -

(a) subjecting the corporations to market discipline will instil a customer-oriented culture in the service providers;

(b) the establishment of a proper accounting system will enable the operators to measure more accurately the costs and benefits of providing their services. This will in turn give them an incentive to run the activities more efficiently;

(c) by freeing the corporations from government rules and procedures, the operators can have more flexibility to operate and the capability to be more responsive to customers' demands and changing market conditions; and

(d) corporatisation can offer the opportunity for more private sector involvement in traditionally government run activities.

9. Since my announcement in this year's Budget Speech that the Government is committed to going ahead with corporatisation, there has been invariable concerns on which departments the Government is planning to corporatise. With the wide range of public services that the Government is now providing, there are some which have more potential to be corporatised than others. In identifying potential candidates for corporatisation, we have to examine carefully a number of issues. These include -

(a) the frequent queries of the Public Accounts Committee of the Legislative Council and the public on the efficiency of certain departments. This is a very important factor;

(b) whether such activities should still belong in the public sector having regard to modern day requirements;

(c) whether corporatisation will result in improvements in efficiency, quality of services, etc;

(d) whether there are healthy market conditions for the activities to be corporatised. In other words, whether a corporation can sustain its business after establishment;

(e) whether the public interest would be safeguarded in respect of corporatisation proposals which affect services to the public;

(f) whether acceptable arrangements could be worked out with staff for implementing the changes; and

(g) whether the Government is likely to receive any financial benefits in the medium to long term.

10. On the pace of corporatisation, we shall take forward the proposals in a pragmatic manner, and not as some Members said that the Government had plans to privatise all public services. We aim to establish a limited number of corporations in the years to come. In so doing, we fully recognise the importance of maintaining stability in the Civil Service. We would conduct full consultation with the staff and Members on any corporatisation proposal. We are now in the process of identifying suitable candidates and are working to put forward concrete proposals to this Council as soon as possible, hopefully by the end of this financial year. We are prepared to engage in more in-depth discussions with Members on these individual proposals.

Privatisation of public corporations

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11. Let me now turn to privatisation of public corporations. Corporatisation may serve as an interim step towards privatisation, though this may not necessarily follow in all cases. Whether a government department or a corporation would eventually be privatised may depend on many critical factors, one of which is whether suitable market conditions prevail. A detailed assessment would be made after the corporation had been established for some time depending on individual circumstances.

12. I announced in my Budget Speech this year that the Government proposes to privatise a substantial minority share of the Mass Transit Railway Corporation (the MTRC) through a public offering. A privatised MTRC will introduce a new dimension of supervision of its management and operations by its investors, making it more efficient and cost effective. With privatisation, the public has an opportunity to take part in one of the successful investments by the Government. Privatisation will also add a high quality, heavily capitalized company to our equity market and provide a balance to the existing weightings of banks and property companies. All these would help promote our position as an international financial centre.

Key issues involved

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13. I would now like to address the concerns raised by some Members on a number of issues. On the job security of the staff concerned, I would like to stress that private sector participation or corporatisation does not necessarily mean that all or a significant portion of staff of the department concerned have to be made redundant. There are various options that we may employ to deal with the staffing arrangements. For example, we may second the existing civil servants to the new corporation, or gradually redeploy the surplus staff to other suitable positions within the Civil Service or other parts of the department for cases of private sector participation or where only a division of the department is corporatised.

14. We reckon that the process for all the staff of a corporation to change to non-civil service status may take quite a long period of time, and in the meantime, the corporation would have to manage a mixed staff situation. We are prepared to proceed carefully with the process of achieving efficiency gains in exchange for a more stable transition towards corporatisation. We always bear in mind that it is Government's policy that redundancy should be avoided as far as possible. In the case of privatisation of the MTRC, the impact on the staff's job security is minimal.

15. On the need for consultation, the Government attaches great importance to consultation with staff over issues of staff concern. I could assure Members and the staff that when the Administration has worked out any specific proposal on corporatisation or proposals which affect the staff's current job, we would consult the staff who are directly affected as early as possible. We would also consult the staff side of the Central Consultative Councils as and when appropriate. We attach importance to staff's participation in the process and always aim to seek the staff's support and understanding in implementing any changes affecting their job. To maintain the stability and morale of the Civil Service is always the Government's objective.

16. On the monitoring mechanism of the quality of service and level of charges, we fully understand that these will be the major areas of public concern in considering any private sector participation, corporatisation or privatisation proposals affecting services to the public. Improvement of service quality is one of our major objectives to introduce private sector participation, to corporatise or privatise. This is the thing that we would never sacrifice in the process. There are many ways that we can monitor the service level. For example, the establishment of performance indicators in a service contract or in an agreement between a corporation and the Government. In each and every case, we would ensure that there will be a proper mechanism set up. In the case of MTRC, we will codify and establish the monitoring of pre-determined indicators on the standards and levels of service of MTRC in the Operating Agreement.

17. On the monitoring mechanism of the charging of fees, we always believe that free market competition is the best mechanism to control fees. In taking forward any corporatisation proposal, where there is an existing mechanism whereby fees are subject to this Council's approval, any proposal to amend the arrangement would require this Council's agreement.

18. In only about six months' time, we will enter into the new millennium. This will bring new opportunities to us but will also impose unprecedented challenges on our abilities to compete globally. Changes towards a more efficient public sector is the direction that we have to go. In implementing these changes, the Government will take into account the concerns of all stakeholders and strive to seek a balance of interest when working out individual proposals.

19. I have listened carefully to the concerns expressed by some Members on the impact of our moving towards more private sector participation, corporatisation and privatisation of public corporations. In the context of corporatisation or privatisation, many of these issues raised, such as the job security of the staff concerned, the monitoring mechanism of the quality of service and the level of charges, the need or otherwise for Government to regulate the activities of the corporation, the need to introduce competition, are rather abstract in the sense that not all of them would necessarily feature in each corporatisation proposal. I have addressed many of them in general terms during my speech today. It would be more meaningful to conduct detailed discussions only when we have specific proposals to look at. Nonetheless I am happy to note Members' views today and take them into account as we move forward.

20. Thank you.

End/Wednesday, June 16, 1999

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