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LCQ5: XRL Hong Kong section

     Following is a question by the Hon Gary Fan and a reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (November 4):


     In 2010, the Finance Committee of this Council approved fundings of $55 billion and $11.8 billion respectively for the railway and non-railway works under the project to construct the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL project), to be entrusted by the Government to the MTR Corporation Limited (MTRCL). As at June 30 this year, the cumulative expenditure on the railway works exceeded $45.1 billion, while the total amount of unresolved claims from contractors was $17.4 billion. It has been reported that the funding for the XRL project is bound to run out by the end of this year, given the current project progress and expenditure trend as well as the cost for settling the claims. In this connection, will the Government inform this Council:

(1) given that MTRCL officially confirmed in April and June 2014 respectively that the XRL project had experienced delay and the project cost would exceed the approved project estimate (cost overrun), and that the Independent Board Committee appointed by MTRCL and the Independent Expert Panel appointed by the Government have respectively submitted their investigation reports on the delay of the XRL project, why the Government has not reached a consensus with MTRCL to date on the liability issues in respect of the delay and cost overrun of the XRL project; how much longer it will take, as estimated by the authorities, to reach such a consensus;

(2) of the expenditure situation, as at the end of September this year, of the railway and non-railway works under the XRL project, with a breakdown of the expenditure on the railway works by expenditure items (i.e. civil works, architectural works, building services, railway electrical and mechanical works and contingencies); given that the Government must adhere to the "dedicated-fund-for-dedicated-use" principle in the use of fundings, of the Government's measures to deal with the situation where the cumulative expenditure on the railway works has exceeded the approved estimates of expenditure of $55 billion and the authorities are unable to secure new funds; and

(3) as it has been reported that some contractors of the XRL project are plotting an en masse walkout due to their dissatisfaction over the delay on the part of the Government and MTRCL in handling their claims, of the means by which the authorities can prevent such situation?



     The Government has grave concern about the further delay and cost overrun of the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link (XRL). The MTR Corporation Limited (MTRCL) first notified the Government in April last year that the commissioning target would be delayed to the end of 2017. In August last year, the MTRCL announced that the latest Cost to Complete (CTC) for the Hong Kong section of XRL project would be $71.52 billion. Based on the information provided by the MTRCL at that time, the Highways Department (HyD), with the assistance of its monitoring and verification (M&V) consultant, completed the assessment of MTRCL's revised CTC and urged the MTRCL, in November 2014, to review again the revised CTC in the light of HyD's review findings and the reports of the MTRCL Independent Board Committee, and to advise on how the issues in the revised CTC would be addressed.  

     On June 30 this year, the MTRCL notified the Government of its latest review results regarding the revised Programme to Complete (PTC) and revised CTC of the Hong Kong section of the XRL project. The commissioning target of the Hong Kong section of the XRL will have to be delayed further to the third quarter of 2018, which includes a six-month contingency period. As regards the CTC, the MTRCL advised that the amount would have to be revised to $85.3 billion, which includes a sum of $2.1 billion for contingency.

     My reply to the various parts of the Hon Gary Fan's question is as follows:

(1) Under the Entrustment Agreement between the Government and the MTRCL, the Corporation is entrusted by the Government to act as a project manager in the construction, testing and commissioning of the Hong Kong section of the XRL project. While it is understood that major infrastructure projects may face different kinds of or unforeseen challenges and difficulties, the Government is of the view that the MTRCL, being the project manager of the Hong Kong section of the XRL project, bears the greatest responsibility and duty to control project cost and manage risks. It has to fulfil its role in supervising and coordinating its various contractors, sparing no efforts in controlling cost and completing the project as scheduled.

     The Government has commenced discussion with the MTRCL regarding the latest revised completion date and entrustment fee as well as the ways to resolve the problem of cost overrun. At the same time, the Government has requested MTRCL to provide information on its performance in managing certain works contracts. The Government would not accept the continuous cost overrun of the XRL project and consider that there should be a cap on the ultimate entrustment fee. The loss incurred should not be solely borne by taxpayers and any failure of MTRCL to fulfil its duties as the project manager will not be condoned.  

     We will strictly review the performance of the MTRCL as the project manager in accordance with the Entrustment Agreement and relevant law, and will pursue the Corporation's responsibility. The HyD and its M&V Consultant have initially completed the review on the MTRCL's revised assessment, and the HyD is currently following up on certain matters in conjunction with the Corporation. Upon completion of all relevant review work, the Government will report the outcome and solution to the public and Legislative Council (LegCo).

(2) Of the financial provision approved by the LegCo, the financial commitment to the construction of the Hong Kong section of the XRL is covered by Public Works Programme (PWP) Item Nos. 53TR (construction of railway works) and 57TR (construction of non-railway works). Each of the two PWP items includes project management cost payable to the MTRCL, and fees for consultants appointed by the Government for monitoring and vetting the MTRCL's work including cost. The total approved project estimate is $66.8175 billion.

     The expenditures of the two PWP items as at June 30, 2015 are set out at Annex 1. A breakdown of the expenditure on the construction of railway works (i.e. PWP Item No. 53TR) is at Annex 2. The figures at Annex 1 show that the cumulative total expenditures of both PWP items have not exceeded their respective approved project estimates. Even if the project management cost payable to the MTRCL and fees for the M&V Consultant etc. are taken into account, the cumulative total expenditure on the XRL Project is $53.2580 billion, still below the LegCo's approved project estimate of $66.8175 billion. The Government will uphold fiscal discipline and strictly adhere to the "dedicated-fund-for-dedicated-use" principle.  Under the Entrustment Agreement, the MTRCL as the project manager will not commit itself to any additional responsibility for payments to contractors if it is well aware that there is a shortage of funds.

(3) As the project manager, the MTRCL has a primary duty to assess each claim in a prudent manner. The contractor needs to provide sufficient supporting information justifying its claim. Upon receipt of the relevant information in support of a claim, the MTRCL is responsible for processing, analysing and carefully reviewing each item of information provided so as to determine whether the claim is justified and what the final amount of allowed compensation should be. Some claims might need to be resolved by mediation or arbitration. A longer time might be needed before the final amount of payable compensation can be determined. Before the completion of review of a claim, any figure referred to will only be regarded as an estimate on the part of the contractor alone. It cannot be in any way regarded as an amount payable by the Government nor expenditure on the Project.   

     It would not be appropriate for me to further disclose the specific claim figures and details in this connection, lest it might affect the negotiation between the MTRCL and the contractors. The contractors have the responsibility to complete the works according to contract requirements and cannot walk out at will. Meanwhile, the MTRCL in its capacity as project manager should properly handle the responsibility borne by the contractors according to terms of contracts. As of now, MTRCL has not submitted to us any report on any walkout being contemplated by the contractors.

Ends/Wednesday, November 4, 2015
Issued at HKT 15:20


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