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1. Private cash pushed for public works

2. Rail merger could be a route out of the red

3. Is it the end of the road for the controversial Route 10 project?

1. Private cash pushed for public works
Keith Wallis, The Standard 16 December 2002

The Hong Kong Construction Association is adding its weight to calls that private finance should be used to fund a slice of the government's HK$23.6 billion infrastructure spending programme.

``We're trying to make the people of Hong Kong realise there is another way to finance public works contracts,'' association secretary-general Patrick Chan said.

He said there was ample experience in Britain and Australia in using private finance to fund infrastructure projects.

The United Kingdom first adopted public private partnerships (PPP) in the 1990s that had evolved into private finance initiatives (PFI).

Under both systems, contractors tender to finance, design, construct, maintain and operate facilities such as schools, sports halls, highways, hospitals and prisons. They are repaid by the government based on the number of people or vehicles that are anticipated to use the facilities over a certain period, usually up to 30 years.

So far PFI deals in Hong Kong have been limited to the three cross-harbour tunnels, landfills and waste transfer stations. Under the latest plans, the privately financed schemes could be smaller with several buildings included in one contract.

Experience in Britain and Australia has shown the facilities are better designed and built and have lower operating costs. This is because contractors are responsible for maintenance and have a vested interested in keeping such costs as low as possible.

Chan agreed that while there was support within government circles to launch privately financed projects, there was a lack of direction as to what the next stage should be or how schemes could be implemented.

Both Financial Secretary Antony Leung and Secretary for the Environment, Transport and Works Sarah Liao support the concept of projects financed by banks and other financial institutions.

``We are very keen to work with the private sector,'' Leung told The Standard.

He believed contractors could implement projects faster, possibly at lower cost, but offered no suggestion on concrete projects.

The Hospital Authority recently appointed PricewaterhouseCoopers to investigate whether a planned centralised kitchen complex should be built under a PFI-type contract.

The Efficiency Unit is also weighing the advantages and disadvantages of introducing PFI and PPP contracts.

Contractors, design consultants and banks have lobbied the unit in an attempt to persuade the government to use private finance.

Gammon Skanska, one of Hong Kong's top contractors, said there should be a pilot programme of projects to test the PPP/PFI concept locally. The firm said a sizeable proportion of the projects now funded by the taxpayer could be financed by the private sector.

The government is planning to spend almost HK$23.6 billion on public works this year, not including land acquisition, systems and equipment, compared with HK$21.5 billion in the last financial year. Overall, the government has approval to spend HK$266 billion on infrastructure works either already under way or planned, although it has only spent about HK$138.6 billion so far, according to budget estimates.

The head of French contractor, Dragages et Travaux Publics HK, said Hong Kong had the opportunity to take the best experience from around the world to avoid the problems that had affected implementation of some PFI projects.

Dragages managing director Luc Messier said: ``We can take a lot experience from good and bad deals, so we take only the good deals. We've got our own experience.

``Talking to contractors, consultants, lawyers, and auditors there are a lot of people with a rich background in PFI/PPP.''

Commenting on the lack of implementation plans, Chan said: ``The person holding the key is the one that makes the decision.''

2. Rail merger could be a route out of the red
DENISE TSANG, SCMP 16 December 2002

Analysts see the proposed merger of the MTRC and the KCRC as a way for the government to boost its dwindling coffers. Picture by Dickson Lee

Few issues so neatly encapsulate the government's fiscal dilemma than how to put the railways back on the right financial track.

Rail projects have long been funded by the government and profits from property development, but changing economic conditions demand hard choices.

Four years ago the Mass Transit Railway Corporation (MTRC) was partially privatised, with investors lured by potentially large property profits and a promise that fares would be set on commercial terms. In reality, grinding deflation prompted government intervention to stop fare rises and there has been a near halt to new property projects.

Government accounts are bleeding red ink and the search is on to find alternative ways to finance a much-needed rail expansion. Shareholders and passengers' interests seem to be on a collision course.

Merging the MTRC and the Kowloon-Canton Railway Corporation (KCRC) appears to be one of the few dramatic policy shifts on Chief Executive Tung Chee-hwa's policy agenda.

The merger would seem to reduce competition, but supporters argue that a tightly regulated publicly listed monopoly would provide passengers with reasonable fares and the government with a sustainable financing model. A broader issue is better co-ordinating the development of rail and road systems to reduce congestion, pollution and unnecessary duplication of resources.

Those targets are not contradictory and fit the government's aim of widening its income sources and rationalising expenditure, analysts argue.

Mr Tung is expected to reveal the administration's decision over the merger on January 8 when delivering his first policy address in his second term.

The MTRC, which operates five urban subway lines and the Airport Express railway, and the government-owned KCRC, which operates the East Rail between Hunghom and Lowu and the light rail system, are among the government's prime assets. Few argue about the potential economic benefits arising from combining the two firms into one transport giant with an asset base of about $150 billion.

From the government's perspective, selling 100 per cent of the KCRC to the publicly owned MTRC will give a vital boost to the MTRC's profits, rail networks and assets, and facilitate the sale of the second tranche of MTRC shares. The government had hoped to raise $15 billion but the surprise merger proposal in June forced another delay.

Analysts point to the fact that the government will raise more money if the MTRC's assets are boosted through a merger.

"We believe a merger is not only possible, but probable," according to Peter Williamson, ING Financial Markets transport and logistics analyst.

He estimates the government could raise a combined $33 billion out of the sale of the KCRC and the second tranche shares, assuming the government sells the KCRC at $24.44 billion to the MTRC, or at 0.41 times the KCRC's historical book value.

Benefits of a merger to passengers would include convenience in MTR and KCR rail line interchanges and fare savings.

The MTRC's chairman, Jack So Chak-kwong, says a merger would create savings and efficiency that will ultimately be passed on to passengers.

A Merrill Lynch research report found that the enlarged MTRC could save at least $100 million to $140 million a year through elimination of overlapping. An ING estimate put the savings at $400 million a year.

Academics have argued that longer term and more broadly spread savings can be achieved through rationalising over-lapping rail and franchised bus routes.

Bill Barron, an associate professor at the University of Hong Kong, argues a solution lies in forcing bus companies to run feeder services to MTR stations as a complement rather than competitive threat to rail operators.

On Wednesday: welfare and civil service

3. Is it the end of the road for the controversial Route 10 project?
SAMUEL YEUNG, SCMP 16 December 2002

Expectations are high that Chief Executive Tung Chee-hwa will shelve the much criticised Route 10 superhighway project, intended to connect Hong Kong with Shenzhen, when he presents his blueprint in January.

"I have no idea whether the Policy Address will tackle the issue, but I'll bet the project does not get the go-ahead," said Sir Gordon Wu Ying-sheung, Hopewell Holdings chairman and one of the chief critics of Route 10.

Democratic Party lawmaker Andrew Cheng Kar-foo said: "I hope the Policy Address will clarify the government's stance on the project, including how the planned Hong Kong-Macau-Zhuhai bridge can complement the project in the future."

The controversial superhighway was conceived as a critical piece of infrastructure, especially its southern section, which includes link roads to the Tuen Mun highway - one of the SAR's most notorious traffic blackspots.

But it has been bitterly opposed because of the inaccurate projections in the government's Comprehensive Transport Study of 1999.

According to the study, daily traffic on the Lantau link section in 2001 would more than double to 83,000 vehicles, while volume on the parallel Tai Lam tunnel section of Route 3 would exceed 80,000 vehicles. In fact, daily volume on the two roads was less than half that by 2000.

"Route 3 already provides north-south access in the New Territories and it is under-utilised," said Christine Loh Kung-wai, chief executive of Civic Exchange, adding it would make more sense to maximise the use of existing resources instead of building the $22 billion Route 10.

Opponents of the scheme have also pointed out that Route 10 runs almost parallel to the privately operated Route 3.

After intense lobbying from parties like the Route 3 (CPS) Company and the Action Group Against Route 10, the Legislative Council in March blocked the construction of its northern section.

Route 10's southern section, originally intended to connect to western Hong Kong Island, has already been scrapped.

Sir Gordon has made it his crusade to ensure that the already scaled-back project is ditched.

"[The southern section's] Tsing Lung Bridge is not an effective link to [Chek Lap Kok airport] because it makes a detour to North Lantau," he said.
Instead, he has called for a bridge-and-tunnel link between Tuen Mun and Chek Lap Kok - an option supported by both the MTRC and the Airport Authority.

Such a scheme could also link the Airport Express, West Rail and the planned Hong Kong-Macau-Zhuhai bridge.