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The Government announced today (February 24) that the MTR Corporation Limited (MTRC) and Kowloon-Canton Railway Corporation (KCRC) have been invited to start negotiations on a possible merger. The negotiations are to be conducted on the basis of the parameters set by the Government.

The two railway corporations have been given six months to conclude their negotiations. The Government will then decide whether or not to proceed with the merger having regard to the outcome of the negotiations.

"We have examined carefully the pros and cons of a proposed merger. We believe that a merger of the two railway corporations could bring synergies and more effective utilisation of resources for the two corporations," a Government spokesman said.

"We have hence invited the two railway corporations to commence negotiations on a possible merger.

"To ensure that the public can benefit from the merger exercise, the Government has set the framework for the negotiations," the spokesman said.

The negotiations should be conducted on the basis of the following key parameters:

a) adoption of a more objective and transparent fare adjustment mechanism;

b) abolition of the second boarding charge and review of the fare structure with the objective of reducing fares;

c) early resolution of interchange arrangements for rail projects under planning, notably the Shatin-Central Line (SCL);

d) ensuring job security for the frontline staff of both corporations at the time of the merger;

e) provision of seamless interchange arrangements in the long run; and

f) conclusion of the negotiations by August 31, 2004.

The spokesman said the parameters reflected the aspirations of the community. "In determining the parameters, the Government has taken into account the relevant considerations."

The relevant considerations include the following:

* There continues to be strong community demand for fare reduction and the establishment of a more objective and transparent fare adjustment process. The possible merger provides a very good opportunity for the corporations to review their overall position in meeting public aspirations.

* A merger will argue for the abolition of the existing second boarding charge between MTRC and KCRC. However, the removal of the second boarding charge is likely to impact adversely on fare revenue of the two corporations. This calls for a comprehensive review of the fare structure to rationalise the fare levels in light of the likely synergies and the removal of the second boarding charge, with a view to reducing fares overall.

* A merger should reduce duplication of networks for future railway projects and facilitate early resolution of interchange arrangements for projects under planning, notably the SCL.

* A merged corporation could maximise the utilisation of the existing railway facilities and reduce project cost and the time required for negotiations between the two corporations on project interface issues. In the long run, new rail lines should be designed to provide seamless interchange arrangements for passengers.

* A merger could allow the streamlining of the management structure, better management of the whole railway system and better corporate management overall. Nevertheless, it is necessary for the corporations to give their frontline staff some assurance during the negotiation/transition process to maintain stability and ensure the smooth operation of their services. The two corporations have been asked to ensure that timely and accurate information on progress of the deliberations would be communicated effectively to their staff.

"While the Government will incorporate proper safeguards and precautionary measures into the Operating Agreement or the governing legislation of the merged corporation to ensure proper regulation of its operation, a merged railway corporation would continue to face strong competition from other modes of public transport. The merged corporation would hence have to provide quality service at highly competitive fare levels in response to market force," the spokesman explained.

"We expect the two corporations to start putting together their own team and make preparations for the sharing of data as soon as possible. We hope they will reach an agreement within the framework of the parameters for the negotiations.

"A balance would have to be struck between the public interest on the one hand and the interest of minority shareholders of MTRC on the other if the merger terms are to be acceptable to both sides. The Administration will assess carefully the outcome of the negotiations before deciding on the way forward," the spokesman said.

Ends/Tuesday, February 24, 2004

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( Floor / Cantonese / English )