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Following is the speech by the Chief Secretary for Administration, Mr Donald Tsang, in tabling " The Government Minute in response to the Report No. 42 of the Public Accounts Committee dated June 2004" in the Legislative Council today (October 20):

Madam President,

Laid on the table today is the Government Minute responding to Report No. 42 of the Public Accounts Committee (PAC).

The PAC report deals with the Administration's response to one outstanding case in the Director of Audit's Report No. 41. In addition, it examines five subjects in the Director of Audit's Report No. 42. The Administration is grateful for the time and effort of the PAC.

I would like to reply to some of the comments made by the Chairman of the PAC, who spoke on 23rd of June on these subjects when the PAC Report was tabled.

The Acquisition and Clearance of Shipyard Sites

In response to PAC's remarks concerning the surrender of the Penny's Bay shipyard site, the Administration has taken on board the Director of Audit's recommendations. In future, the Lands Department will critically evaluate the risks and financial implications and obtain approval from the relevant policy bureaux before accepting a surrender of land on an so-called "as is" basis. The Lands Department has issued internal instructions also to this effect. The Secretary for Environment, Transport and Works has also instructed all works departments to take on board the Director of Audit's recommendation on strengthening site investigations and liaison with other concerned departments for potentially contaminated sites.

Hong Kong Harbour Fest

Turning to the PAC's findings on Harbour Fest, we accept that there were inadequacies in the assessment, planning and implementation of the project by all the concerned parties, including the Administration; and that the complexities and the time needed to plan and organise such an ambitious project had been under-estimated. Without under-stating the exceptional circumstances that gave birth to Harbour Fest, not least of which was the strong community sentiment for urgent actions to get Hong Kong back on its feet after the SARS disaster, we agree all the concerned parties could have done better in many respects. We have learnt useful lessons from the findings of the Independent Inquiry appointed by the Chief Executive as well as those from the Director of Audit and the PAC.

In the past months, we have been actively following up on the various recommendations made by these bodies. For example, following PAC's suggestion, InvestHK has obtained from AmCham (the Amercian Chamber of Commerce) its accounting records in relation to Harbour Fest, and authorisation from Red Canvas Limited which had acted as AmCham's Special Purpose Vehicle for the organisation of Harbour Fest, for the Director of Audit to access its accounting records that were in the possession of the Independent Panel of Inquiry on Harbour Fest. InvestHK has been working closely with AmCham to explore the opportunities for broadcast of the TV video on Harbour Fest in other overseas markets. Recently, the video has been broadcast in Europe. Red Canvas has already assigned all registered trademarks in relation to Harbour Fest to the Government. In consultation with the Intellectual Property Department and the Department of Justice, InvestHK is discussing with AmCham the legal documentation for AmCham to relinquish, in the near future, its custodianship of the intellectual property rights associated with Harbour Fest.

Separately, the Financial Services and the Treasury Bureau has issued a financial circular on the principles Controlling Officers should observe and factors they should consider when planning non-works projects involving government funding. This will provide useful pointers for Controlling Officers to follow throughout project planning and project delivery.

The Civil Service Bureau (CSB) has been tasked by the Chief Executive to examine the possible culpability of any civil servants involved in the Harbour Fest incident. CSB has completed the collation of relevant facts and evidence relating to the manner in which civil servants carried out their duties in connection with Harbour Fest. In undertaking this exercise CSB has taken into account the findings of the Independent Panel of Inquiry's Report on Harbour Fest and the PAC Report No. 42. CSB has also invited and received representations from an officer who faces a possible charge of misconduct. After giving the representations careful consideration, the Secretary for the Civil Service decided to institute formal disciplinary proceedings, including an inquiry, to determine whether the officer is guilty of misconduct.

Funding of projects under the Applied Research Fund

PAC was concerned about the performance of the Applied Research Fund (ARF). The Secretary for Commerce, Industry and Technology is thus reviewing the Administration's overall strategy in innovation and technology development, including the role and future of the ARF. The Administration seeks to devise a new strategy for developing innovation and technology that emphasises market relevance and industry participation in identified focus areas where we have a competitive advantage. We will see to it that any future role of the ARF will be compatible with this overall strategy. The Secretary for Commerce, Industry and Technology aims to brief the LegCo Panel on Commerce and Industry on the outcome of review by the end of 2004 or early next year.

With regard to the PAC's comment that we should strengthen the disposal mechanism of investments, I am pleased to report that the Applied Research Council (ARC) has agreed with their fund managers on improvement measures. In future, prior approval of the ARC will be sought if the anticipated divestment price is 15% below the latest valuation or market price. The fund managers will also have to seek ARC's approval if the terms and conditions of divestment would be less favourable than those applicable to others at the same time of disposal. We consider this an appropriate safeguard without unduly restricting fund managers from exercising their best possible professional judgment in managing divestment.

The ARC has reviewed how it should handle its surplus funds. Since the ARF's investment in research and development projects is by definition risky in nature, the ARC considers that its primary investment objective for surplus funds is to take on less risky investment to preserve capital. It will only consider investing in low-risk investment vehicles with good credit rating. In drawing up its investment plan, the ARC will also seek to estimate as accurately as possible the cash flows of individual funded projects. The ARC is now in the process of putting its surplus funds to suitable low-risk investment vehicles with a view to increasing the rate of return of surplus funds and preserving its capital.

Harbour Area Treatment Scheme Stage 1

The Administration is mindful of the PAC's concerns over the delay and increase in cost in completing Harbour Area Treatment Scheme Stage 1. We have critically reviewed the experience from the project and formulated effective measures to ensure that future large-scale works projects are delivered on time and within budget.

We have reviewed our policy on the use of forfeited plant in completion contracts, and formulated additional guidelines to protect the Government's interests. The Secretary for Environment, Transport and Works has directed all works departments to improve budgetary control of works projects, particularly the accuracy of project estimates and the discipline to control spending against approved project estimates. She will make certain that works departments follow these guidelines to improve project management.

On the PAC's recommendation that LegCo be informed of significant differences between the estimated contract sum in the Approved Project Estimate and the awarded tender price, the Administration will be happy to provide LegCo with quarterly reports, beginning from the last quarter of 2004. As for the reporting of dispute settlements under a works contract, the Administration has since October last year introduced a new clause to all public works contracts. This clause permits the Administration to disclose to the PAC, under certain conditions, the outline of the dispute and the terms of the settlement, if PAC has specifically asked for a disclosure. We believe this has satisfactorily addressed the PAC's concern.

The Administration does not have a set policy on taking legal proceedings against a defaulting contractor. We prefer to settle any disputes arising from a contract by the most equitable and amicable means. That said, we would not refrain from legal proceedings if necessary, after critically assessing the merits of legal action. We believe that this approach is in the best interest of the public.

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 very much.

Ends/Wednesday, October 20, 2004

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