Troubled waters

PUBLISHED : Friday, 21 March, 2008, 12:00am
UPDATED : Friday, 21 March, 2008, 12:00am

In the early hours at Central's outlying islands pier No 6, several late-shift workers are waiting to catch the 3am ferry home to Peng Chau, flanked by another handful of Mui Wo-bound commuters. The first sailing of the day for the triple-decker vessel attracted fewer than 20 passengers.

The scene reflects the fact that Hong Kong's island ferries have long been a loss-making business. Amid dwindling patronage, surging operational costs and the government's transport policy with the emphasis on railways, ferry operators are left to face the tough choice of either cutting costs - which might lead to a reduction in services - or enhancing service quality in the face of vigorous competition from other forms of public transport.

But the decision was never entirely that of the businessmen or the government.

Last month, when New World First Ferry and Hong Kong and Kowloon Ferry demanded fare increases ranging from 30 per cent to 50 per cent before they would commit to another three-year operating licence for four outlying island routes - between Central and Mui Wo, Peng Chau, Yung Shue Wan and Sok Kwu Wan - upon their expiry in June, the government proposed a reduction in services as a trade-off for a smaller fare increase.

Its attempt to make concessions failed to appeal to either the residents or the operators. The first group to protest included district councillors, indigenous villagers and the Rural Committee, who said they did not want fares to rise or services to be reduced. Long-time expatriate residents said they were willing to accept a fare rise of up to 30 per cent only if services could be retained.

The government compromised, retaining most of the services - including overnight sailings that suffered the highest losses - in the second tender of the four routes.

The 25,000 residents of the three affected islands - Lantau, Lamma and Peng Chau - may be pleased with their victory, but the outcome does little to strengthen the ferry business. Many observers and the operators themselves say the services are not sustainable in the long term.

A glance at Transport Department figures gives an idea of the problem. In 1971, one year before the opening of the Cross-Harbour Tunnel, when Hong Kong's population was 3.94 million, the number of passenger trips on ferries stood at 248 million. In 2006, however, when the population was nearly 7 million, the number of passenger trips had fallen to 56 million.

The quick development of land transport links to Hong Kong Island has been a key factor in the decline of ferry usage. If the Cross-Harbour Tunnel was the first heavy blow dealt to the ferry business, the one inflicted by the MTR in the early 1980s was even more severe. The railway network had a huge impact on travelling habits. The threat it posed to other modes of public transport such as buses caused those operators to restructure their services, which in turn further undermined the ferry businesses.

Land reclamation further marginalised ferries as commuters, looking for door-to-door transport, opted for buses and the MTR instead.

But it was not just the inner-harbour ferries that were affected. Outlying islands routes - which had remained unchallenged for many years, also lost their patronage, with the appearance of the MTR Tung Chung line, Lantau Link and Route 8 in the past decade.

Those operators who were fortunate enough to remain unaffected by the tunnel and transport link changes have been hit by higher fuel costs.

'Our patronage has remained more or less static throughout the years, but escalating fuel prices eat into our profit,' said Nelson Ng Siu-yuen, director and general manager of Hong Kong and Kowloon Ferry.

Last year, the operator of the two ferry routes between Central and Lamma reported that its deficit had grown to HK$34 million in its previous eight years of operation, fuelled by higher diesel prices that rose more than five times, from HK$1 per litre in 1999 to HK$5.58 per litre last year.

The same problem has also plagued New World First Ferry, which said losses had risen to HK$15 million by January this year. New World has been forced to close several routes - including that between Tsim Sha Tsui and Cheung Chau, Mui Wo and Tai O - since it took over the operation from Hong Kong and Yau Ma Tei Ferry in 2000.

To save the businesses, the government exempted operators from paying their vessels' fuel duties, parking fees and licence fees. It also shouldered the bill to repair and maintain the pier and allowed operators to sub-let the government-owned pier premises for rental income.

'Basically, what was left for them to pay were just staff wages, fuel and maintenance fees on their own fleet,' a government source said.

But Mr Ng said many of these measures were not new. 'We never have had to pay any tax for our fuel, and the government always takes care of the piers; they are its property,' he said.

'The government said it helped us gain rental income, but there are all kinds of restraints, we can't rent the place for a fashion show because it does not meet fire safety requirements,' said Mr Ng.

'It took the government - our landlord - six years just to fix the sprinkler system.'

The public also has been pressuring the government to do more. 'To address the root of the problem, the government should buy out the ferry fleet and outsource its management back to the operators,' said Lantau South district councillor Rainbow Wong Fuk-kan, whose thoughts echoed those of many lawmakers and residents.

Lantau and Lamma expatriates argued that what the government had done for ferries was meagre compared with the capital grants and valuable land plots it offered the MTR Corporation as subsidies for the railway businesses.

But the government source said that was a common public misconception. 'We subsidised the construction costs of the rail track, not the operation cost of MTR,' the source said.

'If we take over ferries, we could as well take over buses, minibuses, or any other loss-making public services, but is that what the people really want? Reversing from a market-driven economy back to a state-owned enterprise?'

The Transport and Housing Bureau said it had resolved the pier rental restrictions with other departments and now allowed ferry operators to lease the pier building for activities including exhibitions and performances.

In the next three years, the bureau planned to add extra storeys to increase each pier terminal's rentable floor areas by more than 18,000 sq ft.

'We are planning to apply to the Town Planning Board about changing the land use for the pier premises to bring in new tenants like restaurants and offices to settle at the pier,' the source said, adding that such a plan had not been carried out earlier due to a legal wrangle about structures over the pier.

Office rental prices in Central rose by 34 per cent in the past year, from HK$61 per sq ft in the first quarter to HK$82 per sq ft in the fourth, recent Rating and Valuation Department figures show.

If the pier rental plan works, it might provide operators with more than HK$1 million in extra income each month.

Mr Ng is not optimistic. 'We can also lease our shops at present, but I can tell you it's not really as popular as you imagine,' he said.

'The piers are quite far from the city centre and economic activities, and if all three outlying islands pier buildings are given an extra floor to rent that will be an abundant supply of nearly 60,000 sq ft and I am not sure if there would be sufficient demand for that.'

Even if it worked, a veteran transport analyst said it might just help the government buy another 10 years before it must take over the ferry operation.

'Costs go up, they don't go down. Keener competition and ever-rising expectations of commuters over ferries' speed and their environmental impact will continue to bring up the operational costs. The additional revenue - even if there is some - won't be able to cover the losses forever,' said Leung Kong-yui, associate head for logistics and transport at the Hong Kong University Space Centre.

A potential time bomb that has been threatening the ferry operators was an amendment in law that required all vessels to adopt the greener low-sulfur diesel, which could be at least 50 per cent more expensive than existing diesels.

'Some of the three-decker vessels received by New World from Hong Kong and Yau Ma Tei Ferry eight years ago could be nearly 30 years old by now.

'How much would it cost New World if they need to change them all?'

While agreeing it was a dangerous path for the government to take over a public transport business, Mr Leung - a former member of the Transport Advisory Committee - said such a move was not without precedent.

The government had rented its own vessel to run the ferry services between Po Toi Island and Aberdeen when the route's operator quit a few years ago, although it was quickly taken over by another operator.

'Some outlying islands ferry routes are the only means of transport that connect the residents to the outside world, and they cannot be replaced,' said Mr Leung.

'When the need arises, the government would have no choice but to keep the service going, regardless of its market-orientated principle.'