Taken for a ride by the MTR fare adjustment mechanism

2013/06/14

At long last, the MTR Corp (MTRC) and government have announced the amended upward and downward fare adjustment mechanism (FAM), which will take effect this month. Although the new mechanism has provided for rebate of profits and a ceiling on fare increases based on the fluctuation of the median of household incomes, the present review is considered to be negligibly minimal, with little real benefit to the masses. I find it most arbitrary and incomprehensible that the MTRC's spokesperson, in a recent media interview, deliberately differentiated the profits from MTRC's property development as an entirely separate concept from the profits arising from its fare adjustment.

For many years MTRC's property business brought about huge profits. Even though the profit was not as high last year, it was still above that forecast by the market. It's patent that the value of a site depends essentially on its location and accessibility. All sites above or adjacent to MTR stations invariably become prime sites, due to the benefit of the convenient and rapid linkage to various other places via the railway network. Undoubtedly, the shopping malls and residential developments in Tung Chung and Tseung Kwan O would not have attained their present values if they were not directly reachable by MTR.

More importantly, as Hong Kong's long-term public transport strategy is rail-based, with bus services as a supplement, the MTR will certainly continue to be the principal mode of public transport in the foreseeable future. It is estimated that by 2020, about 70 percent of our developed areas will be covered by the railway network. Increases in patronage and further improvement of the network would boost the rental incomes and profits of sales of MTRC's property developments even further. It is understandable that MTRC, as a listed company, needs to uphold its shareholders' benefits. However, most investors would regard investing in MTRC as an investment in real estate more than an investment in a transport enterprise. While the enhancement in the property values depends on the convenience provided by the railway network, it would be reasonable to see that a small portion of the former profits be ploughed back to subsidize the operation of the transport service.

In terms of forms of rebates, although MTRC has all along provided certain fare concessions, the amount was negligibly low. Take last year as an example; the amount incurred on fare concessions was HK$150 million, which represented just less than 2 percent of the MTRC's total profits of HK$9.78 billion. 

Although a "profit-sharing" mechanism is introduced under the new mechanism including the profits due to property development, in fact there are two restrictions on the enjoyment of the benefit: first, there is a cap of HK$250 million of profit for sharing; second, in the coming five years, the concession would mainly take the form of "10 percent discount on every second trip within the same day", i.e. it is in effect an indirect sales-promotion tactic inducing consumers to ride the MTR more, ultimately benefiting the corporation itself.

MTRC has announced that the fare increase this year is 2.7 percent. Although it is undeniable that operating costs have increased due to inflation, the affordability of the masses is still an issue to be addressed since the Hong Kong government is a major shareholder of the corporation. Citizens find it difficult to accept such fare increases while the MTRC made a profit of more than HK$9 billion. I hope that the government would further improve the FAM before any possible escalation of the resentment in the community.

The author is a LegCo member for the architectural, surveying and planning sector.

(Source: HK edition)