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Following is a question by the Hon Bernard Chan and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (November 6):

Question:

It has been reported that MTR Corporation Limited ("MTRC") is planning to seek a $4 billion capital injection from the Government to finance the construction of the MTR South Island Line. In this connection, will the Government inform this Council:

(a) of the criteria for deciding whether or not to provide financial support for MTRC;

(b) of the form of support (such as cash injection or the granting of property development rights) that it will consider; and

(c) whether it has studied the appropriateness of using public money to subsidize MTRC which is a listed company?

Reply:

Madam President,

Government would first of all have to consider the extent to which the proposed railway project serves Hong Kong's transport needs. If the Government decides to proceed with the project and if MTRC were to be invited to take up this project, my reply to the question is as follows:

(a) The Government has agreed in the Initial Public Offering Prospectus and in the Operating Agreement with MTRC that it would not require the company to construct and operate any future railway project without the latter's agreement. The Government also acknowledged that MTRC would require an appropriate commercial rate of return on its investment in any new railway projects, which would ordinarily be between 1% and 3% above the estimated weighted average cost of capital (WACC) of the company. In order for a particular new railway project to earn such a commercial rate of return and for MTRC to maintain its financial standing and profile, financial and other support from the Government may be required.

The Government will consider each request for financial support on its own merits. We would only provide such support if we saw substantial benefit to the public from the project in question (e.g. its ability to relieve congestion). Financial information provided by MTRC will also be vetted to establish the need for financial support.

(b) There is no "one size fits all" solution. We will explore different options including, for example, capital grant, equity injection, loan, grant of property development rights, and the provision of essential public infrastructure works.

(c) The Government's long-term objective is to develop railway as the backbone of transportation in Hong Kong. The Government's policy is also not to subsidize the operation of public transport. To these ends, the Government acknowledges that any new railway project will have to provide a commercial return to the operators chosen to implement the project.

When processing requests for financial support from MTRC, the Government will strive to strike a balance between our undertaking to the company and its minority shareholders during its privatisation and its status as a publicly listed company. Consideration will be given to whether MTRC is the entity with the greatest capacity and expertise to deliver the projects on time and in the most effective manner, and to the assessed economic and other benefits of the proposed railway projects in relation to the level of support sought.

End/Wednesday, November 6, 2002

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