**************************************************

    Following is the speech (translation) by the Chief Secretary for Administration, Mr Donald Tsang, introducing the Government Minute in response to the Report No. 43 of the Public Accounts Committee dated February 2005 in the Legislative Council today (May 18):

President,

    Laid on the table today is the Government Minute responding to Report No. 43 of the Public Accounts Committee (PAC).

    The PAC report examines five subjects in the Director of Audit's Report No. 43.  The Administration is grateful for the time and effort of the PAC devoted to this report.

    I would like to respond to some of the comments made by the Chairman of the PAC, who spoke on 23 February when tabling the PAC's Report.

English Schools Foundation

Government Subsidies to the ESF

    We note the concern of the PAC about a divergence of views between the Administration and the English Schools Foundation (ESF) on the role of ESF in our school system and its future subvention arrangement.

    As the Secretary for Education and Manpower has explained during the public hearings, the Administration values quality education.  We fully appreciate the ESF's contributions to the education sector over its 38 years of service and are keen to see its continuous growth.  But at the same time, the Administration is obliged to ensure that public money is properly spent.  As in the case of government departments and agencies, all subvented bodies have to discharge their functions in a fair, open, efficient and cost-effective manner.  This also forms the basis on which the subvention from Government should be justified.

    The PAC's concern highlights the controversy involved in the subvention debate.  We consider improving the governance of ESF an overriding priority, preceding over the subvention issue.  Pending a satisfactory resolution of the governance problem as flagged up by the Director of Audit and the PAC, we genuinely see little scope for any substantive discussion with the ESF in the meantime.

Corporate Governance and Headquarters Administration of the ESF

    That takes me to the subject of corporate governance and headquarters administration of the ESF, which has invited severe criticisms from the PAC.

    The PAC expressed concern about the role of the Education and Manpower Bureau (EMB) in ensuring a high standard of corporate governance in the ESF.  We fully respect the PAC's views.  While ESF schools do not receive more Government subsidies than any of other local aided schools in Hong Kong, they have the privilege of being supported by a full team of senior management which might not be available in most of the local school sponsors.  It is therefore reasonable to expect more from the ESF in ensuring a high standard of corporate governance.

    We note that changes are under way.  Shortly before the publication of the PAC Report, the new ESF Chief Executive assumed duties on 14 February 2005.  The ESF subsequently prepared an action plan in late March 2005, setting out among other things a full programme of reform measures in following up the PAC recommendations.  The Government Minute has included this document for Members' reference.

    I would also like Members to note that the ESF has established a Governance Reform Task Force to look into the governance issues, including those raised by the ESF, with an ultimate objective of separating management functions from the governance body.  After going through necessary internal consultation and other preparatory work, the ESF expects that more detailed proposals will be available in June this year and full implementation pursued before the academic year begins in September 2006.

School Administration of the ESF

    The action plan also contains the ESF's work plan in respect of the PAC recommendations on the administration of ESF schools.

Summing Up

    Allowing some time for actions, the ESF would be ready to prepare a fuller report to the PAC later this year.  Without prejudice to our practice of avoiding micro-managing any subvented bodies, EMB would closely monitor the progress of ESF's reform and would offer advice as appropriate.

    On the very issue of the future subvention arrangement, EMB would be ready to continue its discussion with the ESF upon the latter's restoration of a proper governance structure.  Pending that, the Administration would continue to require the delivery of efficiency savings by the ESF and would implement reductions in subsidies.

Grant of land at Discovery Bay and Yi Long Wan

    The Administration has noted the PAC's criticism of the then land authority over the grant of land at Discovery Bay (DB), particularly regarding the fact that the then Administration had not obtained the Executive Council (ExCo)'s endorsement of the change of DB's development concept.  The PAC urged the Administration to seek ExCo's endorsement of that change.

    As acknowledged by the PAC, the DB development began in the 1970s and 1980s and took place against the particular economic and development background prevailing at that time.  The then Administration apparently considered that, given the huge investment in the project and the prevailing circumstances, the developer should be allowed some flexibility in the implementation process.  Indeed, as set out in the submission to the then Governor in Council (GinC), the authority to handle changes made to the Master Layout Plans (MLPs) was vested in the then land authority under the lease conditions.  Whether the then land authority should have judged the changes of the development at DB as representing a fundamental change from the original concept and submitted them to the then GinC for endorsement is a matter of interpretation.  To put the matter beyond doubt, as undertaken by the Secretary for Housing, Planning and Lands at the PAC's hearings, the Administration has sought ExCo's endorsement of what has already taken place in the DB development.

    We wish to assure Members again that as our town planning system has become mature with a clear process for preparing statutory plans and channels for hearing public views, and as a system of enhanced accountability and transparency is now in place, it is unlikely that the experience of the DB development would recur elsewhere.

    Regarding the land encroachment problem, the Lands Department has implemented or is taking active steps to implement the various measures recommended by the Director of Audit and the PAC, as reported in detail in the Government Minute.

Control and monitoring of District Council expenses and related activities

    In response to the Director of Audit's recommendation, the Administration originally planned to withdraw the existing administrative measure of allowing without query a tax deduction of 50% of the honorarium for District Council (DC) members, starting from the 2005-06 final assessment.  However, DC Chairmen, Vice-chairmen and members have expressed concern about the timeframe and indicated that they might have difficulties fully understanding and complying with the record-keeping requirements.

    In order to allow sufficient time for introducing appropriate arrangements which would not cause undue inconvenience and confusion to DC members, the Administration has decided to defer the withdrawal of the administrative measure from 2005-06 to 2006-07.  All DC members have been informed of this implementation date and will be fully briefed on the detailed arrangements before the administrative measure is withdrawn.

    Separately, the PAC has recommended that the Government should consider converting 50% of a DC member's honorarium to the Operating Expenses Allowance, which is non-taxable so that DC members' honorarium, similar to those of ExCo and LegCo Members, is all taxable.  As the recommendation involves fundamental changes to DC members' remuneration package, the Government intends to consult the Independent Commission on Remuneration for DC Members, an independent body set up to advise the Government, if and when necessary, on matters relating to the remuneration package for DC members.  We will report back to PAC the considered views of the Independent Commission.

    Finally, I wish to echo the PAC Chairman's remarks that the PAC plays an important role in safeguarding public interests by continuing to press for the delivery of high quality public service in an efficient and cost-effective manner.  The Administration looks forward to receiving its constructive comments and wise counsel.  As always, we shall respond positively and promptly.

    Thank you, President.

Ends/Wednesday, May 18, 2005

NNNN