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LCQ18: Property development rights granted to railway corporations

    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 (June 18):


    In reply to my question raised at the Council meeting of April 23 this year, the Government provided profit figures of the former MTR Corporation Limited ("MTRCL") and the Kowloon-Canton Railway Corporation ("KCRC") in respect of property developments for the period 2003-2007.  The profits were generated from the property development rights granted by the Government as funding support to the former MTRCL for undertaking the Airport Railway and the Tseung Kwan O Line projects, and to the KCRC for undertaking the Tsim Sha Tsui East Extension and the Ma On Shan Line projects.  In this connection, will the Government inform this Council:

(a)  of the amount of profit it estimated that the railway corporations would derive from each of the property developments when the property development rights were granted to them for the aforesaid railway projects, and whether it knows the actual amount of profit that the railway corporations have derived from each of the property developments; and

(b)  as the Government has stated that owing to various factors, it did not compare the actual and estimated revenues of the property developments concerned after granting the property development rights to the railway corporations, whether it has considered that in the absence of such comparisons, how it can ascertain the extent to which its original estimates of the revenues to be generated from the property developments are accurate, and that not having such comparison figures is also not conducive to making more accurate estimates when property development rights are granted to the railway corporations in the future?


Madam President,

    Railway projects require huge capital investment during both the construction and operation stages. For new railway projects which will benefit the society but will not be financially viable, the Government will consider, on a case-by-case basis, different ways of funding support to finance these projects, with a view to achieving the Government's responsibility in providing fast and convenient transport infrastructures. Granting property development rights to railway corporations is one of the means in bridging the funding gaps of the railway projects.

    My reply to the questions is as follows:

(a)  The estimated profits generated by the granting of property development rights for financing the implementation of railway projects such as the Airport Railway, Tseung Kwan O Extension and East Rail Extensions (Note 1) are listed as below:

Railway Project      Estimated Property Development
                      Profits (Note 2)(HK$ Million)                 
Airport Railway          3,700
Tseung Kwan O Extension  5,200
East Rail Extensions      4,300
(Note 1)

Note 1: The "East Rail Extensions" project consists of three railway projects namely Tsim Sha Tsui East Extension (TST East Extension), Tai Wai to Ma On Shan Rail Link (MOS Line) and Lok Ma Chau Spur Line (Spur Line).
Note 2: In price level at the time of proceeding with the project.

    The Hon Lau Kong-wah raised a question on April 23, 2008 about property development profits attained by the former MTR Corporation Limited (MTRCL) and Kowloon-Canton Railway Corporation (KCRC). I have responded to that question. However, as the property developments for the above railways have not yet been fully completed, the actual figures of profit from property developments are not yet available.

(b)  Railway projects require intensive capital investment. In consideration of the financial support for a new railway project, the Government will assess the cash flows during the operating life of the railway over a period of 50 years, and to take into account a basket of factors that might affect the annual cash flows during the project operating life, such as capital cost, operating and maintenance expenditure, transport demand, population and economic growth.  Based on the above factors, the Government will assess the funding gap of individual project, and decide a means of funding support for the project. As a matter of fact, we will use a financial model in assessing the financial proposal of the railway project. In it, we have made assumptions on the concerned parameters. The revenue and expenditure incurred during the operation period, such as the operating and maintenance expenses, fare and related revenue as well as profits from property development, may differ from those at the time of financial assessment. However, we will try our best in conducting the assessment. Once the project agreement is signed, the financial risk will be totally borne by the railway corporation. Hence, it may not reflect the real financial situation if only the profits from property developments up to present were focused. 

    As I pointed out in my written reply dated April 23, 2008, for the railway projects that are under planning, the Government will engage independent consultants to assess the project cost estimates. In the case when "rail-plus-property" is being considered as a means to provide the funding support, the Government will also engage an independent property consultant to assess the probable profits to be generated from the property development rights. A proper mechanism will be devised to ensure that the estimated profit to be derived from the property development rights will be comparable to the estimated funding gap of the projects.

Ends/Wednesday, June 18, 2008
Issued at HKT 16:40


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