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LCQ1: Fare adjustments of public transport

    Following is a question by the Hon Andrew Cheng and a reply by the Secretary for the Environment, Transport and Works, Dr Sarah Liao, in the Legislative Council meeting today (May 2) :


     Regarding the fare adjustments of public transport, will the Government inform this Council:

(a)  of the principles it has adopted for vetting and approving fare increase applications made by public transport operators, and whether it had rejected any of such applications in the past 10 years; if it had, of the operator involved and the reasons for rejection for each case;

(b)  whether it had, in the past 10 years and in the capacity as the largest or the sole shareholder, directed or requested the MTR Corporation Limited and the Kowloon-Canton Railway Corporation (the two railway corporations) to lower their fares in line with deflation; if it had, of the relevant details; if it had not, the reasons for that; and

(c)  whether it plans to remain, on a long-term basis, as the majority shareholder in the two railway corporations, in order to retain its influence on matters such as fare determination, which involve significant public interest; if not, of the relevant details?


Madam President,

(a)  the Government considers a basket of factors when assessing fare adjustment applications from public transport operators.  In general, this includes changes in operating costs and revenue of the operators, their financial performance, public acceptability and affordability, and the quality and quantity of service provided.  In particular for franchised buses, the Chief Executive-in-Council endorsed a new fare adjustment mechanism on January 10, 2006 which introduced a formula as an additional factor.  This new mechanism enables bus fares to be adjusted upwards and downwards in response to prevailing economic conditions, and improves the objectivity of the fare adjustment process.

    Of the public transport fare increase applications processed by the Transport Department in the past 10 years, 17 applications involving 34 green minibus routes were rejected.  The rejections were made on the ground that the financial conditions of these routes could continue to support their operation.

    As for railways, since railway operation involves huge capital investment, both the Kowloon-Canton Railway Corporation (KCRC) and the MTR Corporation Limited (MTRCL) have autonomy to determine their own fares under the Ordinance or the Operating Agreement.  They are not required to submit applications to the Government for fare adjustment.  For the period from 1997 to 2006, both corporations increased their fares in 1997, and have frozen the fares since then taking into account the social and economic conditions.

(b)  It has always been the Government's advice for the railway corporations to take into account public acceptability and the need to strike a balance between their operating conditions and market competition when setting their fares.  Public transport operators, including the two railway corporations, are also encouraged to introduce concessionary measures to passengers having regard to their respective operating conditions in order to alleviate the burden of travelling expenses on the public.  Both the MTCRL and the KCRC enjoy fare setting autonomy.  In accordance with the spirit and system of free enterprise, the Government will not direct the two corporations on how to set fares as these are commercial decisions. This is in line with the requirement for the two railway corporations to operate according to prudent commercial principles.  The corporations are also governed by independent Boards of Directors and managed by professional management teams which on one hand ensure that the railway corporations will provide efficient services and on the other hand obviate the need for the Government's subsidy on their operation, thereby protecting the public interest.

(c)  In 2000 when the MTRCL was listed, the Government undertook to remain the major shareholder of the Corporation and to continue to hold the legal and beneficial interest in not less than 50% of the ordinary share capital of the Corporation and not less than 50% of the voting rights at annual general meetings of the Corporation for at least 20 years from the date of listing.  This undertaking will not be altered as a result of the rail merger.  It reflects Government's commitment to the continuous development of railway system and shows local and overseas investors as well as credit rating agencies that the Government is determined to support the Corporation in its continuous provision of quality railway services and expansion of the transport infrastructures.  The Government's support is an important factor in maintaining the Corporation's credit rating and can reduce its costs of borrowing.  At present, the Government holds approximately 76% of the Corporation's share.  Regarding the KCRC, the Government, as its sole shareholder, has no intention to change the status quo after the rail merger.

    As a matter of fact, though the two rail corporations enjoy fare setting autonomy, they are obliged to operate according to prudent commercial principles.  Fare adjustment is a commercial decision for the railway corporations to be approved by the Board of Directors/Managing Board, rather than for the major shareholder.

Ends/Wednesday, May 2, 2007
Issued at HKT 11:48


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