LCQ6: Fare reduction for students after rail merger

    Following is a question by the Hon Lau Wong-fat and a reply by the Secretary for the Environment, Mr Edward Yau (in the absence of the Secretary for Transport and Housing), in the Legislative Council today (November 28):


     The MTR Corporation Limited has recently revealed that, upon the merger of the Mass Transit Railway ("MTR") and Kowloon-Canton Railway ("KCR") systems next month, the 50% discount on student fares currently provided by MTR will not be extended to the original KCR lines, and students travelling on the original East Rail, West Rail and Ma On Shan Rail networks will have to pay full fares. As it is expected that the potential property developments along the KCR lines and the high patronage of the KCR lines by mainland visitors under the Individual Visit Scheme will generate substantial revenue for the post-merger MTR Corporation Limited, will the Government inform this Council whether it knows the data used by the relevant authorities in their calculation and in arriving at the conclusion that with the offer of the general fare reductions as originally pledged, the synergies arising from the merger do not allow further room for providing a 50% discount on fares for students travelling on KCR?


Madam President,

     Under the fare reduction package for the rail merger, students travelling with a Student Personalized Octopus will continue to enjoy the existing student fare concession when travelling on six specified railway lines on the MTR network, viz. the Kwun Tong Line, Tsuen Wan Line, Island Line, Tung Chung Line, Tseung Kwan O Line and Disneyland Resort Line. They will also enjoy the fare reduction for Adult Octopus as part of the rail merger package when travelling on the KCR network, including the East Rail Line, West Rail Line and Ma On Shan Line, i.e. there will be a minimum of 10% fare reduction for journeys charging fares at $12 or above, a minimum of 5% fare reduction for journeys charging fares between $8.50 and $11.90, and a global fare reduction of $0.20 for other journeys. Students travelling with a Student Personalized Octopus will also benefit from abolition of second boarding charge when they interchange at the Kowloon Tong Station, Mei Foo Station, Nam Cheong Station, Tsim Sha Tsui Station and East Tsim Sha Tsui Station.

     Mass Transit Railway Corporation Limited (MTRCL) announced on November 22 its new fare tables which will take effect upon the rail merger. In overall terms, passengers travelling with a Student Octopus can also enjoy substantial fare reduction.  For instance, students interchanging between the KCR and MTR systems for a journey between Sha Tin and Kwun Tong will have their student fare reduced from $8 to $6, representing a reduction of 25%. Student fare for a journey between Ma On Shan and Yau Ma Tei will be reduced from $10.60 to $7.10, representing a reduction of more than 30%.

     Under the financial terms for the rail merger, MTRCL will pay an upfront payment of $4.25 billion and fixed annual payments of $750 million to Kowloon-Canton Railway Corporation (KCRC) throughout the concession period and variable annual payments based on actual revenues generated from operation of the KCR system starting from the fourth year of the rail merger according to agreed terms. The relevant financial terms have taken into account the estimated future growth in passengers travelling on the KCR system. As regards the KCRC property package, it is sold to MTRCL on market terms. The price of the property package is confirmed to be reasonable and fair by the relevant professional property valuation consultant who adopted a methodology for property valuation commonly accepted in the market. MTRCL will make a payment of $7.79 billion to purchase the property package.

     The proposed fare reduction is made possible by synergies to be achieved as a result of the rail merger. In the previous discussions of the Bills Committee on Rail Merger Bill, the two railway corporations have explained in details the calculation basis of the merger synergies. The synergies were identified via a detailed review conducted jointly by the two corporations and supported by a management consultant. Each functional area common to both corporations was examined, and assessment has been made on the potential savings in expenditure and cost as well as the implementation period of these saving initiatives. Synergies identified would come from the following three areas:

* Transfer of best practice (e.g. optimal use of non-traffic hours for engineering works);
* Procurement; and
* Support functions (e.g. reduction in overheads)

     The railway corporations estimated that the synergies would amount to about $450 million per annum, net of the implementation costs. By comparison, the fare reduction package for the rail merger could bring about an annual saving of around $600 million to benefit the public. Although it will take a few years for the post-merger corporation to progressively realize the synergies in full which amount to about $450 million per annum, MTRCL has committed to return the benefits of the merger synergies to the public through fare reduction immediately from the first day of the rail merger.

     In fact, the Bills Committee on Rail Merger Bill has discussed the issue of student fares upon the rail merger on a number of occasions in the past year. Because of the reasons mentioned above, MTRCL consider that all the synergies would be returned to the public and thus they would maintain the existing arrangements for fare concession for students.

Ends/Wednesday, November 28, 2007