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Following is a question by the Hon Lau Kong-wah and a written reply by the Secretary for Transport and Housing, Ms Eva Cheng, at the Legislative Council meeting today (April 23):
Question:
In the past, the Government has assisted in financing the construction of new railway lines by means of granting property development rights for land along the proposed railway or providing grants to the two railway corporations. In this connection, will the Government inform this Council:
(a) of the respective amounts of revenue that each railway corporation derived from property development projects in each of the past five years, and the relevant figures estimated by the Government (based on the estimates made at the time when the relevant development projects were approved by the Government);
(b) whether it has assessed if the amounts of revenue that the two railway corporations derived from property development projects in the past have far exceeded the Government's original estimates; if the assessment result is in the affirmative, of the reasons for that; and how the Government ensures that the relevant estimates made in the future will be more accurate; and
(c) of the respective and total amounts of grants the Government provided in each of the past five years to the two railway corporations for the development of new railway lines?
Reply:
Madam President,
Railway projects require huge expenditure and intensive capital investment at the construction stage and during the operating period. Under the Mass Transit Railway Ordinance (Cap 556) (previously entitled the "Mass Transit Railway Corporation Ordinance") and Kowloon-Canton Railway Corporation Ordinance (Cap 372), the two railway corporations have to operate on prudent commercial principles. Therefore, in assessing the financial viability of railway projects, the two corporations have to consider if the expected revenues of the projects can cover all the direct operating expenditures, costs of capital, maintenance and asset replacement as well as providing reasonable commercial returns on the capital invested.
As regards new railway projects that are financially non-viable but desirable in terms of overall public interest, Government will calculate the funding gap of the projects after scrutinising the railway corporations' estimates on such aspects as projected patronage, construction costs and operating (fare and non-fare) revenues and then consider providing funding support for the railway projects. Not only can this arrangement enable the railway corporations to meet the huge expenditure for railway infrastructures, but also maintain the fare at a level affordable to the general public. Granting the property development rights and offering non-recurrent capital grant are among the financing modes the Government may adopt in providing funding support to the railway corporations.
My reply to the questions is as follows:
(a)&(b)According to the annual reports of the former MTR Corporation Limited (MTRCL) and Kowloon-Canton Railway Corporation (KCRC), their respective profits from property development over the past five years are listed below:
(HK$ Million)
2007 2006 2005 2004 2003
Profits on 8,304 5,817 6,145 4,568 5,369
property
development
for MTRCL
Profits on 0 427 0 0 0
property
development
for KCRC
The above profits are generated from the property development rights granted by the Government as funding support to the MTRCL for undertaking the projects of Airport Railway (including the Airport Express Line and Tung Chung Line) and Tseung Kwan O Line and to the KCRC for undertaking the project of Tsim Sha Tsui East Extension and Ma On Shan Line. Apart from using the profits derived from property development on its sustainable operation, the railway corporations will also use the profits on capital investment in new railway lines, maintenance and operation expenses of operating railways and asset replacement of its system.
The schedule on the sale of properties concerned is a commercial decision made by the railway corporations. The Government has not made any estimate on the profits from railway property development for any particular year. The railway corporations have to pay Government the full market premium on a green field site basis for implementing property development projects and therefore bear all the risks of the property market. If the actual revenues turn out to be lower than expected, the railway corporations cannot request for additional funding support from the Government.
In view of the above, the Government has not compared the actual and estimated revenues of property development projects after granting the property development rights to the railway corporations.
For the forthcoming railway projects, to ensure more accurate estimates of the revenues from property development, Government will engage independent consultants to assess the possible profits to be generated. A proper mechanism would be in place to ensure that the estimated profit to be derived from the granting of property development rights to the railway corporation would be comparable to the estimated amount of the funding gap of the project.
(c) During the period from 2003 to 2007, Government only provided funding support for the Disneyland Resort Line project in the form of waived dividend payment. As for the West Island Line project which was approved for implementation by the Executive Council in October 2007, the funding gap is estimated to be around $6 billion. The Government has proposed bridging the gap with a non-recurrent capital grant. The first stage funding at an amount of $400 million, covering the cost for design, was provided to the MTRCL in February 2008.
Ends/Wednesday, April 23, 2008
Issued at HKT 15:35
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