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Following is a question by the Hon Lee Wing-tat and a written reply by the Secretary for Transport, Mr Nicholas Ng, in the Legislative Council today (Wednesday):

Question : It is reported that Route 3 (CPS) Company Limited plans to make an early application to the Government for increases in Tai Lam Tunnel tolls as the traffic flow at the tunnel is lower than expected. In this connection, will the Government inform this Council:

(a) of the policies and principles to be followed and the major considerations in deciding whether approval should be given to the company's application for toll increases;

(b) given that the original estimates of traffic flow and annual net revenue made by the Government and the company are at variance with the actual situation due to changes in the economic environment, whether it will consider holding discussions with the company to review the projected traffic flow of Tai Lam Tunnel and adjust the estimated annual net revenue; and

(c) as there is evidence that the original estimates of traffic flow and income are at variance with the actual situation, whether it has formulated contingency plans for dealing with the situation in which the company's income still falls short of the target and cannot meet its loan repayment even with the toll increases?

Reply :

Madam President,

The Tai Lam Tunnel, which commenced operation in May 1998, is a "build, operate and transfer" (BOT) tunnel project. It is regulated within the framework provided by the Tai Lam Tunnel and Yuen Long Approach Road Ordinance (Cap. 474), enacted in May 1995, and the Project Agreement, signed also in May 1995.

Under the Tai Lam Tunnel toll adjustment mechanism, toll adjustments are to be made in accordance with an agreed formula set out in the Ordinance. This mechanism is based on calculations that reflect a set of prescribed rates of return for the project over the franchise period, and is intended to provide greater assurance to the franchisee on the return of the project. In assessing any application for toll increase, the Government's main task is to ensure that all the technical requirements spelt out in the Ordinance and the Project Agreement, including the timing of submission and the compilation of financial figures, have been fully complied with. If all such technical requirements are fulfilled, the Government will be obliged to allow the application.

In the Ordinance, the minimum and maximum estimated net revenue levels are specified for each year throughout the franchise period. There are also a total of three anticipated toll increase dates, the first one being January 1, 2003. Under normal circumstances, the Company will be able to apply for a specified toll increase if the net revenue is less than the maximum estimated net revenue for the relevant specified date. If traffic is so low in any year such that the actual net revenue falls below the minimum estimated net revenue specified for that year, the Company can apply for an advancement in toll increase. Should traffic volume be unexpectedly high in a particular year resulting in the actual revenue exceeding the maximum estimated net revenue specified for that year, the Company is required to transfer the surplus to a "Toll Stability Fund" which can be used as a reserve fund to defer or avoid advancing a specified toll increase.

The various estimated net revenue figures that are set out in the Ordinance have been pre-determined in accordance with the terms of the Project Agreement. Such terms, which also include the original estimates of traffic flows or the estimated net revenue projections, are binding on the Government and the franchisee and the Government cannot unilaterally alter them. There is no provision in the Ordinance or the Project Agreement for the re-negotiation of the terms.

The Government has so far not received any application from the franchisee for a toll increase.

The current average daily patronage for the Tai Lam Tunnel is 39,000 vehicles. While this is still much lower than the original forecast, the patronage figures have to be interpreted against a very volatile economic situation since the tunnel began operation. As the franchise period is 30 years, and the tunnel has been in operation for just over a year, it would obviously be inappropriate to speculate about the financial viability of the project or to talk about contingency plans. The Government will nevertheless monitor the situation closely and will continue to work closely with the Route 3 (CPS) Company Limited to explore ways of promoting the use of the tunnel.

End/Wednesday, June 23, 1999

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