• Sun
  • Aug 31, 2014
  • Updated: 6:55am

Fight looms over toll rise for tunnel

PUBLISHED : Wednesday, 22 June, 2011, 12:00am
UPDATED : Wednesday, 22 June, 2011, 12:00am

Drivers will be cushioned from a 40 per cent toll rise at the Eastern Harbour Tunnel for now, but what comes next could prove to be a lot more expensive.

The government yesterday rejected a toll rise application but New Hong Kong Tunnel, the crossing's operator, said it would move to arbitration, just as it did in 1996 and 2004 - when arbitrators ruled in favour of the company. In the 2004 case, the panel more than doubled the originally proposed 30 per cent rise on the grounds that the company needed the big boost to maintain a 'reasonable but not excessive return'.

But this time the government believes it will be able to argue what a reasonable return is, as it says the situation has changed.

'At the time of the last ruling, they hadn't made much of a profit. Now they have made billions of dollars... how much more is reasonable?' said a person familiar with the situation.

With traffic increasing, the company saw both toll revenue and net profit rise 7 per cent last year from the year before. Shareholders have received a cash flow of HK$5.09 billion since the HK$2.2 billion tunnel began operation.

The company's internal rate of return on equity has climbed from 9.5 per cent in 2004 to double-digit rates. The rate reached an all-time high of 13.1 per cent last year, although still falling short of what arbitrators ruled as a reasonable return of between 15 per cent and 17 per cent. The government expects the rate to reach 14.3 per cent even without the toll rise.

With the toll rise, the company's rate of return would edge up to 14.5 per cent when its franchise expires in 2016, but that means drivers of cars and taxis would have to pay an extra HK$10 on top of the current toll of HK$25. That would bring the company an additional income of HK$164 million a year.

The Transport and Housing Bureau said few projects operated under the build-operate-transfer (BOT) model made such high returns.

The internal rate of return for Tate's Cairn Tunnel - also a BOT tunnel on a 30-year-old franchise - was only 6.1 per cent, even after its application for a HK$1 toll rise was approved last year. The rate was less than half of its shareholders' original expectation.

Professor Billy Mak Sui-choi, an economist at Baptist University, said the government should brace for a toll rise that went even higher than 40 per cent, should it lose out over the arbitration. 'The company will argue that a higher rise is needed because their toll rise plan has been delayed for a year,' Mak said.

As for an earlier proposal to raise tolls for the Cross-Harbour Tunnel and cut them by the same amount for the Eastern Harbour Tunnel to alleviate tunnel-traffic congestion, the government is said to be waiting until learning the outcome of arbitration. That is because the plan would result in only a small increase in revenue for the eastern tunnel - an unattractive option for the operator if the toll rise is approved.

1972

The year the 1.8 kilometre-long Cross-Harbour Tunnel was opened, providing the first road link between Kowloon and HK Island

Share

For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive
 
 

 

 
 
 
 
 

Login

SCMP.com Account

or