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ExCo approves Tate's Cairn Tunnel toll increase

     The Government announced today (May 14) that the Chief Executive in Council (ExCo) has approved the revised application for toll increases by Tate's Cairn Tunnel Company Limited (TCTC) and that the new tolls should take effect on August 1 this year.

     A spokesman said, "In making the decision, the ExCo has considered all the relevant factors, including the magnitude of toll increases, traffic implications arising from the toll increases, public affordability and acceptability, the tunnel company's financial position, service performance, whether the tunnel company is obtaining reasonable but not excessive remuneration and advice from the Transport Advisory Committee (TAC)."

     TCTC applied in March 2012 for a toll increase of $3 for private cars and proportionate increases for other vehicle types, with proposed increases ranging from $2 for motorcycles to $6 for double-decker buses. The weighted average rate of toll increases was 19.6 per cent.

     On receipt of TCTC's toll increase application, the Administration reflected on the company the public's concern about tunnel toll increases, and asked the company to reduce the magnitude of the toll increases. TCTC subsequently agreed to reduce the toll increases and submitted a revised application in November last year, proposing a $1 increase for motorcycles and $2 increase for all other types of vehicle and additional axles. The magnitude of toll increases in the revised application has been lowered from 17 per cent to 24 per cent in the original application in March 2012 to 6 per cent to 13 per cent in the current application, with the weighted average rate of toll increases dropping from 19.6 per cent to 11.1 per cent. For example, the toll increase rate for double decker buses and public light buses has been reduced from 19 per cent to 6 per cent and 24 per cent to 10 per cent respectively. TCTC's existing tolls and new tolls are listed in the annex.

     The cumulative change in the Composite Consumer Price Index since Tate's Cairn Tunnel's last toll increases from December 25, 2010 up to end June 2013 (proposed date for the toll increases in TCTC's application is July 1, 2013) is estimated to be 12.3 per cent, while the median monthly household income increased by 15.3 per cent between the fourth quarter (Q4) of 2010 and Q4 of 2012. In comparison, the 11.1 per cent weighted average rate of toll increases in the revised application is lower.

     If no toll increase is allowed, TCTC is expected to achieve a nominal internal rate of return on equity after tax (IRR) of 6.61 per cent over the 30-year franchise period. With the new tolls, a nominal IRR of 6.76 per cent is expected to be generated. Taking into account the scale of the project in the context of a long term infrastructure investment, it is considered that a nominal IRR of 6.76 per cent under the current toll increase application as approved would not be unreasonable or excessive. The Administration has estimated that after discounting the inflation factor, the tunnel company will have a real IRR of 3.38 per cent.

     The Administration notes that TCTC has been reducing its operating costs (excluding rates and royalty paid to the Government) in every year over the past fifteen years, from about $86 million in 1996/97 to about $64 million in 2011/12. Although Tate's Cairn Tunnel is the longest road tunnel in Hong Kong, its operating costs are the lowest among Build-Operate-Transfer tunnels.

     "When the TAC tendered its views to the Government, it had also considered all relevant factors. They are of the view that TCTC's current application for toll increases is not unreasonable and is justified. The TAC has advised that it would be desirable where possible for the two parties to reach an agreement on the toll increases rather than to incur public expenditure by way of legal costs in resolving their differences," the spokesman said.

     "We expect the toll adjustments will divert around 500 vehicles to Lion Rock Tunnel per day, and fewer than 100 vehicles would be diverted to Tai Po Road and Route 8 between Cheung Sha Wan and Sha Tin per day. The traffic impact of the proposed toll increases on the road system linking Sha Tin and Kowloon is unlikely to be significant and commuters have a choice of alternative routes as well as alternative transport modes. We will closely monitor the traffic situation before and after the toll increases."

Ends/Tuesday, May 14, 2013
Issued at HKT 18:48


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