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LCQ1: FAA for franchised buses and MTR FAM

     Following is a question by the Hon Tang Ka-piu and a reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (June 1):


     The Government introduced in 2006 and 2007 for franchised buses and MTR respectively the Fare Adjustment Mechanisms (collectively referred to as "FAMs"), which provided for both upward and downward adjustments of fares, and it emphasised the objectivity and transparency of such mechanisms. However, in nearly a decade's time since the implementation of FAMs, fares of both the franchised buses and MTR have only gone up but never gone down, regardless of the economic environment of Hong Kong and the movements in energy prices.  Some members of the public have queried that such mechanisms have failed to fully reflect the actual economic conditions, resulting in a continuous increase in their travelling expenses. In this connection, will the Government inform this Council:

(1) of the aspects of FAMs on which reviews or studies have been conducted by the authorities since the implementation of FAMs; whether such aspects included the objectivity and fairness of the mechanisms, the extent to which the data used were time-lagged, and the impacts of the fare adjustments made under FAMs on inflation rates and the burden on the public; if so, of the specific outcome of such reviews and studies;

(2) of the respective numbers of times, since the implementation of FAMs, in which franchised bus companies and the MTR Corporation Limited offered fare concessions under the mechanisms, the projected amount of money to be given back to the passengers each time, and the details of the concessions concerned (including the concessionary periods, the number of trips made by the passengers benefited from the concessions, and whether there were monies left in the projected amounts to be given back to the passengers); and

(3) as some members of the public have pointed out that the fare adjustment formulae under the existing FAMs are incomprehensive (e.g. they fail to reflect accurately the movements in energy prices and the data used are time-lagged, resulting in the fare adjustments pushing up inflation rates and creating a vicious cycle, etc.), whether the authorities will comprehensively revise the fare adjustment formulae and invite academics and stakeholders to join hands to take part in the reviews, with a view to making FAMs fairer and more objective; if so, of the details; if not, the reasons for that?



     It is the Government's policy that public transport services should be run by the private sector in accordance with commercial principles for greater cost-effectiveness while its fares should be fair to both passengers and operators (Fair Fare). At the same time, we encourage operators to offer fare concessions as far as possible having regard to their operating and financial conditions, the nature of service of individual routes, and the needs of passengers.

     At the time of the Rail Merger in 2007, upon deliberations at the Legislative Council (LegCo) and approval at the shareholders' meeting of the MTR Corporation Limited (MTRCL), the MTRCL lost the fare autonomy it hitherto enjoyed, and fares are to be adjusted by adjusting fares by a direct-drive formula. The arrangement has become more objective and transparent.

     As for franchised buses, the current Fare Adjustment Arrangement (FAA) has been in place since 2006. Under this arrangement, a fare adjustment application would be determined by the Executive Council (ExCo) after considering an assessment based on a basket of six factors. One of the six factors is a formula with components similar to those included in the formula for fare adjustment of the MTRCL. Both formulae take into account changes in Nominal Wage Index (Transportation Section) and the Composite Consumer Price Index (CCPI), as well as increase in productivity. For details of the two adjustment mechanisms, please see Annex 1.

     My reply to the various parts of the Hon Tang Ka-piu's question is as follows:

     Review of the MTR Fare Adjustment Mechanism (FAM) takes place once every five years. The first review in 2013 introduced multiple measures to expand the scope of consideration of the mechanism to include the Corporation's profitability level and service performance, as well as public affordability; and comprehensively enhanced monthly passes and related concessions to reduce passengers' burden. A new round of review is advanced by one year so that the review outcome can take effect in the coming year 2017.  The main direction of this review is to see how the operation of mechanism could better respond to public concern about the relationship between fare adjustment and the Corporation's profitability as well as passengers' affordability, whilst still respecting the financial prudence required of the MTRCL as a listed company, on the premise that a direct-drive formula will be retained for fare adjustment. The three-month public consultation commenced on May 20, 2016 and the consultation paper has also been uploaded onto the Government's webpages on the same day.

     As regards the FAA for buses, as aforementioned, it commenced in 2006 and underwent a review in 2009. The review concluded that the FAA has basically been operating smoothly as it manages to achieve a suitable balance between financial sustainability on one hand and public acceptability on the other. Nevertheless, in the interest of passengers, the passengers' share of productivity gain in the formula should be set at zero as opposed to the original negative gain value (-1.05 per cent). In making a decision in respect of an application for bus fare increase, the ExCo will take any relevant factors into account and perform a gate-keeping role on the issue of fare level.

     The Government has started a new round of review on the FAA under the Public Transport Strategy Study to explore whether there is still room for improvement in the operation of the six factors.  The review is expected to be completed in mid-2017.

     The formulae of the fare adjustment mechanisms for MTR and the franchised buses both cover the CCPI and Nominal Wage Index (Transportation Section) to reflect the overall economic situation and wage levels of the industry, with a deduction of a productivity factor. These indices data are compiled and released by the Census and Statistics Department, and are objective and open information.  The CCPI will not only reflect the macro economic situation (including oil prices), but also help assess the public's acceptability level of the fare adjustment. In general, when applying the formulae, fares will rise during economic growth and will fall if otherwise.  

     In applying the formulae, the latest suitable published data will be used. There is no time-lag of data. This is basically objective and fair. We will further study whether there is any room for improvement. In any case, each fare adjustment for MTR and franchised buses has no retrospective effect.

     Since implementation of the existing FAA in 2006, the six bus franchises have had cumulative fare increases ranging from 0 per cent to some 18 per cent, the rates of which are lower than the cumulative inflation of 38.6 per cent over the same period. And since the implementation of the MTR FAM in 2007, the cumulative fare increase rate is 25.2 per cent, which is lower than the cumulative inflation rate of 30.9 per cent over the same period.

     The Hon Tang is concerned whether fare adjustment would lead to higher inflations. Although the transport expenses are a component of the CCPI, the fraction that transport expenses account for is not high. Take the year-on-year increase of CCPI of 2.4 per cent in December 2015 as an example, transport expenses account for less than 0.05 percentage point, i.e. the ratio it accounts for is around 1/50. This figure represented the impact of the overall transport expenses on inflation. If only the fare increases of MTR or franchised buses are considered, the impact will be even smaller.

     As in the past, in reviewing the FAA for franchised buses and the FAM for MTR, the Government will listen to the views of all stakeholders, including the LegCo and the Transport Advisory Committee.  

     Details of the concessionary rebates provided by MTRCL are set out at Annex 2. The details of passenger reward arrangements for franchised buses are set out at Annex 3. Broadly speaking, the MTRCL and the operators of the franchised buses have been offering various fare concessions for different passenger groups.

     Thank you, President.

Ends/Wednesday, June 1, 2016
Issued at HKT 15:45


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