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The review of the Fare Adjustment Mechanism (FAM) jointly conducted by the Government and the MTR Corporation Limited (MTRCL) was completed successfully. The Executive Council approved the outcome of the review today (April 16). The new FAM will take effect starting June this year.
The Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, said at the press conference today, "The new FAM and its related arrangements serve four objectives, including the expanded consideration of the existing FAM – namely the profitability and service performance of the MTRCL, and public affordability; the direct-drive formula of the FAM being retained, and at the same time adding the above three factors, will address the inadequacy of solely relying on the direct-drive formula to adjust fare.
The MTRCL will, based on its business performance, "share profit" with passengers, and will "share pain" with them in times of economic adversity in order to cater for their affordability; the MTRCL will also introduce a number of monthly passes and ticket schemes with especially generous fare concessions to reduce the fare burden on frequent and medium to long journey passengers, many of whom living in more distant lower-income districts."
The existing FAM adopts a direct-drive formula with components of year-on-year changes in the Composite Consumer Price Index (CCPI) and the Nominal Wage Index (Transportation Section) (Wage Index), as well as a pre-determined value of the Productivity Factor (PF):
Overall fare adjustment rate = (0.5 x year-on-year change in CCPI + 0.5 x year-on-year change in Wage Index) - PF
Under the new arrangement, the PF value will be substantially raised from the present 0.1% to 0.6% for the next five years. The calculation of MTR fare increase rate for June 2013 using the new improved direct-drive formula, as compared with that calculated by the old formula, will be reduced by 16%, benefitting all passengers.
To cater for public affordability, no matter the outcome of the direct-drive formula is calculated in future, fare increase rate of that year will not be higher than the change in Median Monthly Household Income (MMHI) for the corresponding period. Any shortfall will be recouped by two yearly phases only in years when the calculated fare increase rate is lower than MMHI. In any case, it will always be capped by the change in MMHI.
In response to the public concern on the MTRCL's profitability, the MTRCL will, based on its underlying business profits each year, set up a "fare concession account" to provide second trip discounts. Passengers will share the MTRCL's operational success. The burden from the fare increase rate on them will also be relieved.
A "service performance arrangement" will also be set up under the new FAM. The MTRCL will be penalised for serious service disruptions of 31 minutes or above. Any fine imposed will be credited to a "fare concession account" for fare concessions through second trip discounts. The rationale of the penalty is not to put undue pressure on the MTRCL's frontline staff and railway safety.
The expanded fare concessions on the different monthly passes and ticket schemes will benefit frequent medium to long journey passengers. The fare concessions vary from different journeys, reaching to at most around 30% discount. Under the new arrangement, the MTRCL estimates that its revenue foregone in 2013 amounts to $289 million.
Professor Cheung expressed that the Government strove to reach a balance between different considerations and needs during the review process.
He said, "The new FAM and its related arrangements will let the MTRCL maintain its financial prudence as a listed company, at the same time taking its corporate social responsibility into account, especially since the MTRCL is an organisation providing major public transport services.
"The new arrangement responds to the public's reasonable requests, and let them share the MTRCL's operational success. These balances laid a sounder foundation for the MTRCL's long term development – to tie-in with the Government's objective in public transport policies, to keep up its high-quality railway services, and to continue its primary role as the backbone of public transport."
Ends/Tuesday, April 16, 2013
Issued at HKT 21:10
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