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LCQ3: MTR fares and the Fare Adjustment Mechanism

     Following is a question by the Hon Chan Hak-kan and a reply by the Secretary for Transport and Housing, Ms Eva Cheng, in the Legislative Council today (April 25):


     The MTR Corporation Limited ("MTRCL") recorded a surplus of $14.7 billion last year, but it announced in March this year that it will increase MTR fares by as high as 5.4% in June this year in accordance with the Fare Adjustment Mechanism ("FAM") which provides for both upward and downward adjustments, and it will at the same time provide some fare concessions.  This is the third consecutive year that MTR fares are being increased and the rate of increase this year is the highest since the implementation of FAM in 2009, resulting in an increase in passengers¡¦ travel expenses.  Yet, MTR incidents occur frequently; according to the figures provided to this Council by the Transport and Housing Bureau, 839 railway related incidents which have to be reported to the Electrical and Mechanical Services Department in accordance with the Mass Transit Railway Regulations occurred last year, representing an increase of 9% over the figure of 2010.  In this connection, will the Government inform this Council:

(a) whether it knows the fare concessions that MTRCL offered to passengers in the past three years, and the respective numbers of passengers who benefitted from such concessions as well as the expenditures incurred, and set out the figures in table form;

(b) of the current review procedures of FAM; whether it will review FAM earlier and consider including in FAM the authority of the Government to vet and approve fare adjustments to prevent MTRCL from effectuating fare increases automatically according to FAM; if it will, of the details; if not, the reasons for that; and

(c) whether it will in the future consider linking the rate of increase in MTR fares to the number of the aforesaid railway related incidents as a penalty system, and to monitor the performance of MTR; if it will, of the details; if not, the reasons for that, and how the Government will ensure that such incidents of MTR will not occur persistently, and timely and quality services will be provided?


     Since the rail merger in December 2007, fare adjustment of the MTR Corporation Limited ("MTRCL") has been subject to an objective and transparent Fare Adjustment Mechanism ("FAM").  The FAM, formulated after extensive discussion in the community and by the Legislative Council ("LegCo"), has replaced the pre-merger fare autonomy of the MTRCL.

     Under the current FAM, the fare adjustment rate for the prevailing year is determined in accordance with a direct-drive formula linked to the year-on-year percentage changes in both the Composite Consumer Price Index ("CCPI") and the Nominal Wage Index (Transportation Section) ("Wage Index") in December of the previous year, as well as a productivity factor.

     The MTRCL reduced its fares immediately after the merger.  Such reductions included (1) a minimum of 10% decrease in Octopus fares for long-haul trips; (2) a minimum of 5% decrease in Octopus fares for mid-haul trips; and (3) a commitment to freeze its fares in the first two years following the merger until June 30, 2009.  The FAM was not introduced until 2009 after the merger and the first fare increase was implemented in 2010.

     The Census and Statistics Department published the CCPI and Wage Index for December 2011 on January 20 and March 26, 2012 respectively.  With reference to these indices, the computation results of the FAM indicate an adjustment rate of +5.4% in the overall MTR fares for 2012.

     According to the FAM procedures laid down in the Operating Agreement ("OA") signed between the Government and the MTRCL in August 2007, the MTRCL is required to provide the Government with two certificates issued by an independent third party to certify that its fare adjustment is in compliance with the FAM.  It is also required to formally notify the Panel on Transport of the LegCo and the Transport Advisory Committee three weeks prior to the implementation of the new fares.  As the OA is a legally binding document, the Government will act in accordance with the mechanism and ensure that the MTRCL complies with the relevant accounting and notification requirements.

     Railway is the backbone of the public transport system in Hong Kong and forms the core of our transport strategy.  The MTR network currently covers the residential areas occupied by 70% of our population.  With an average daily patronage of over 4 million passenger trips, the MTR has become the most popular mode of public transport in Hong Kong.  

     Given the relatively high inflation rate at present and thus a heavy financial burden on the local community, the Government shares the view of the public that the MTRCL should, apart from considering its commercial operations, give due regard to its corporate social responsibility.  While providing safe and efficient railway services, the MTRCL should also strive to help the public reduce fare expenses.  Therefore, the Government has urged the MTRCL to take into account the overall macro-economic environment and implement more and various effective fare concessions so as to address the needs of passengers and alleviate their burden of travelling expenses.

     My reply to the three parts of the question is as follows:

(a) Over the past three years, major fare promotions and concessions provided by the MTRCL include fare concession for children; Student Travel Scheme; fare concession and $2 fare promotion for the elderly; fare concession for Persons with Disabilities; Monthly Pass and Day Pass; free interchange offer and Light Rail Personalised Octopus Frequent User Bonus Scheme; "Ride $100 Get $5 MTR Shop Coupon" promotion scheme; and "Ride $100 Get 1 Free" promotion scheme; etc.  MTRCL's major fare promotions and concessions, as well as the number of passengers benefitted and the amount involved, are at Annex.

(b) Regarding the review of the FAM for the MTR fares, the OA stipulates that the Government or the MTRCL may request a review on the FAM in the fifth year after the merger or every fifth year thereafter.  We shall initiate the review in the second half of 2012 and discuss with the MTRCL, with a view to completing the exercise by late 2012 or early 2013.

     At the time of the rail merger, the establishment of the FAM and the elements contained in its formula were thoroughly discussed and considered by the community and the LegCo.  The CCPI adopted by the current mechanism reflects to a certain extent the macro-economic environment of Hong Kong whereas the Wage Index reflects the staff cost of the MTRCL.  As such, it may be said that the economy and wage precede the activation of any fare adjustment.

     It will be five years in December 2012 following the rail merger.  To better prepare for the FAM review to be carried out in the second half of the year, we have engaged a consultant to conduct a study.  The consultant will examine the relevant issues objectively and comprehensively.  The study will include whether and how new elements in addition to the data linked with the economic performance, wage index and productivity factor should be introduced in the FAM so as to reflect the operating costs, profit level, efficiency of operation and service performance of the MTRCL as well as the affordability of general public, etc., thereby improving the mechanism.  Recommendations made therein will serve as our reference in the upcoming review.

     As to whether approving procedures should be introduced to the mechanism, we are open-minded at this stage.  Of course, we expect the future mechanism would be a transparent and simple one based on objective indicators.  The consultancy study is still underway. We shall take into consideration the findings of the consultancy study upon its completion, as well as consult and listen to the views of various sectors.

(c) The MTRCL has a grave responsibility of providing safe railway services to the community.  The Government has all along required the MTRCL to offer safe, reliable and efficient railway services at all times.  The Electrical and Mechanical Services Department ("EMSD") is responsible for monitoring the safety of railway systems.  It will conduct post-incident investigations to ensure that the MTRCL will take appropriate follow-up and improvement measures.  The EMSD will also conduct regular inspections to check whether the MTRCL has carried out railway system maintenance works as scheduled to ensure railway safety.

     Under the Mass Transit Railway Regulations, the MTRCL has to notify the EMSD of any incident that occurred at any part of the entire railway premises which has a direct bearing on the safe operation of the railway.  The figures mentioned by the Honourable Chan are the number of railway incidents along various MTR railway lines that were caused by railway equipment failure, staff behaviour, passenger/public behaviour as well as other external factors and that were notifiable to the EMSD in accordance with the Regulations.  The EMSD stated that, among the railway incidents in 2011, over 90% were caused by passenger/public behaviour and other external factors such as passengers being nipped by train doors when dashing into the compartments, trespassing and fallen trees under tropical typhoons, etc.  Less than 10% were caused by railway equipment failure and staff behaviour.  Subsequent to an analysis of the incidents concerned, the EMSD found no systemic safety concerns in the MTR services.

     In our opinion, the most important task after the occurrence of a railway incident is to identify the contributory cause and resume normal train services as soon as possible so that the impact to the public can be minimised.

     As for how to apportion blame for the incidents or setting up a demerit system, we are also open-minded.  We should however bear in mind that any suggestion should not unnecessarily incur additional pressure on frontline railway staff, so that it would not bring about any adverse impact on railway safety checks and emergency repairs in their attempt to avoid points being deducted when carrying out repair works within tight timeframes.

     Separately, given the lengthy operational hours and high utilisation of the territory-wide railway network, with hundreds of thousands of systems and components operating non-stop, it is practically impossible to achieve a scenario of "zero incident".  Notwithstanding, we have all along demanded the MTRCL to give safety the highest priority, as under no circumstances should safety be compromised. As to how MTRCL's service performance may be assessed comprehensively and objectively, and linked to the FAM, it is a complicated issue which will be examined in the upcoming review.

Ends/Wednesday, April 25, 2012
Issued at HKT 12:47


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