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LCQ6: Fuel prices and public transport fares

     Following is a question by the Hon Frederick Fung and a written reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (May 6):


     It is noted that with the continuous drop in the international prices of oil and liquefied petroleum gas (LPG) last year, local auto-fuel prices have seen corresponding downward adjustments, including the LPG ceiling price at dedicated LPG filling stations having dropped from over $6 per litre early last year to about $3 per litre recently and the retail price of motor diesel from about $13 per litre last year to about $11 per litre recently.  In this connection, will the Government inform this Council:

(1) whether the authorities have regularly assessed the impacts of the rises and falls of auto-fuel prices on the operating costs of those public transport services (including franchised buses, green minibuses and taxis) which are subject to fare regulation; if they have assessed, of the latest findings; and

(2) as public transport operators had, for many times in the past, applied for fare increases on grounds of rising fuel prices and were granted approval by the authorities, whether the authorities have assessed if there is any room for lowering the fares of various public transport services in view of the persistently low auto-fuel prices at present; whether the authorities will reject, on grounds of low auto-fuel prices, any application for fare increase put forward by public transport operators in the coming year; if they will not, of the reasons for that?



     The Government has been closely monitoring the impact of the fluctuation of oil price on public transport fares.  Public transport modes fuelled by oil products with regulated fares include franchised buses, green minibuses, taxis and ferries.  There is no fuel surcharge for them.  Fare adjustments have all along been made with reference to changes in costs and revenue in overall terms (instead of changes in fuel price alone) and do not have retrospective effect.

     My reply to the Hon Frederick Fung's question is as follows:

     According to the established arrangement for franchised buses, the Government would take into account a basket of factors, including:

(i) outcome of a fare adjustment formula. The formula is (0.5 x Change in Nominal Wage Index for the Transportation Section) + (0.5 x Change in Composite Consumer Price Index) íV (0.5 x Productivity Gain);
(ii) changes in operating costs and revenue since the last fare adjustment;
(iii) forecasts of future costs, revenue and return;
(iv) the need to provide the bus operators with a reasonable rate of return;
(v) public acceptability and affordability; and
(vi) quality and quantity of service provided,
in considering the need of any fare adjustment and the rate of the adjustment, upon receipt of fare increase applications from bus operators.

     Moreover, the adjustment formula would be applied on a quarterly basis.  If the formula outcome reaches -2%, the Government would proactively initiate a fare review to decide whether fares should be adjusted downwards.  The same basket of factors would be taken into account in such a review.  Because of inflation, the outcomes have been staying at the positive level since the formula was introduced in 2006.  Hence, there has been no need to initiate a fare review.

     There is also a passenger reward arrangement under the fare adjustment arrangement for franchised buses.  When the rate of return for an operator reaches or exceeds the threshold of 9.7% as a result of changes in the overall costs and revenue, the operator has to share the profit above the threshold as fare concessions with the passengers on an equal basis.  Some operators have been offering fare concessions to passengers under this arrangement over the past few years (See Note).

     As regards green minibuses, taxis and ferries, their fare adjustments would also be made with reference to changes in the overall costs and revenue.  Changes in fuel price would inevitably affect their operating costs.  However, apart from fuel cost, their operating costs are made up of various components, such as wage expense or rental, and maintenance and insurance.  As the expenditure on various cost components (particularly the labour cost) have basically been increasing in recent years due to an inflationary environment, the impact of the drop in fuel cost alone on overall costs, depending on the actual situation, is insignificant.  The drop therefore does not necessarily provide any room for downward adjustment of fares.

     The Government will continue to keep in view the fluctuation of oil price, and will handle fare increase applications submitted by public transport operators in accordance with the established mechanisms.  In handling such applications, the Government will not only consider changes in overall costs and revenue, but will also take into account factors such as public acceptability and affordability.  This is to ensure that fares would be set at a reasonable level, so that public can continue to enjoy efficient services with reasonable modal choices, while the public transport operators can enjoy long-term financial sustainability.

Note: For instance, Citybus Limited (Franchise for the Hong Kong Island and Cross-Harbour Bus Network) and the New World First Bus Services Limited have introduced same day $2 discount for every second trip and same day return fare discount on solely-operated cross-harbour routes for a period of 16-week from January 2015 onwards. The Long Win Bus Company Limited has introduced same day return fare discount on its airport routes and North Lantau external bus routes for the period from January 31 to May 1, 2015.

Ends/Wednesday, May 6, 2015
Issued at HKT 14:03


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