• Wed
  • Oct 22, 2014
  • Updated: 4:46am
Column
PUBLISHED : Saturday, 26 April, 2014, 1:15am
UPDATED : Saturday, 26 April, 2014, 1:15am

MTR chairman owes us an explanation over project delay

Fiasco not just calls into question the rail operator's competence and integrity, but also raises doubts whether its board remains in control

"The Company's commitment to the highest standards of corporate governance is driven by the Board who, led by the Chairman, assume overall responsibility for the governance of the Company, taking into account the interests of the Company's stakeholders, the development of its business, and the changing external environment."

Mass Transit Railway Corp 2013 annual report

So much for the "commitment to the highest standards of corporate governance". The haze surrounding the delay of the HK$67 billion high-speed railway has turned it into a joke.

First, the board's competence. It had no idea of the delay, from 2015 to 2017, until the management revealed it in a press conference this month. Two board members confirmed to Money Matters that they didn't even know there would be a press conference. "I picked up the announcement [of a press conference] from the news," one said. "That's totally unacceptable."

We are talking about a board that has a composition that well exceeds any corporate governance requirement - 10 independent directors, three government officials and only one executive director.

Yet, one director said: "We rely on the management [to provide information] and the chairman [to decide what to discuss]." He could not recall how often the directors were briefed on the project.

Two board members confirmed they didn’t even know there would be a press conference

Then, the management's integrity. It has repeatedly since May last year denied press reports of any delay. It also assured its board members that the project was on track.

"We did ask. No construction hurdle was ever mentioned," a non-executive director told Money Matters. "The management is more concerned with cross-border collaboration than the work itself."

The management's explanations for the delay have also been doubted. Among them is a power blackout during heavy rain that caused flooding and breakdown of a tunnel-boring machine. The power company has denied any such blackout.

Let's assume all these can be excused because of the technical complexities of the project. But what about what happened after the press conference?

An urgent board meeting followed to discuss the fiasco. Given the public outcry, any sensible and responsible director would have asked:

  • Is it true that the possibility of a delay came to light much earlier?
  • If yes, why wasn't the board informed?
  • Who is responsible for the withholding of that information?
  • Where have the governance and reporting systems failed?
  • What needs to be done to avoid a similar situation in future?
  • How to rebuild the company's reputation among the Hong Kong public and potential investors overseas?
  • How is the delay going to affect the company financially?

A committee of independent directors should have been formed to study the issues. Its shareholders should have been informed of all these.

Yet two weeks into the fiasco, the company has said nothing. None of its top management or its chairman, Raymond Chien Kuo-fung, has bothered to make any statement on the delay.

One justification is that the impact of the delay is materially insignificant and it is not price-sensitive, as shown by the steady performance of its stock since the fiasco.

MTR's income from building government projects last year was less than HK$1.4 billion, a mere 3.7 per cent of its revenue. For a company whose business is heavily subsidised by property development and management, which accounts for more than 65 per cent of its profit, the Express Rail Link is a tiny bit in the larger scheme of things.

Neither can one see a significant risk of claims by the government for the delay.

If the company has indeed sought comfort from these quantitative parameters, it should perhaps speak to its peers in state-owned Sinopec, which, like MTR, is also a monopoly.

On the day of its Qingdao pipeline explosion that killed 48 people in November last year, Sinopec made an announcement.

In January, it announced detailed findings of the investigation, compensation and the firm's safety improvement plan.

To a giant like Sinopec, the financial implications of that incident would be peanuts. But it was quick to realise its reputation was on the line.

The fact that no life was lost in the MTR project delay does not make this fiasco any less serious than the Sinopec blast. That's because what's in doubt here is whether the board is in control at all. What can be a bigger reputation for a listed entity?

The delay is much worse than the repeated train breakdowns that Hongkongers have suffered or the rating of its Shenzhen train service as the poorest performer by both the Shenzhen government and travellers - both swept under the carpet by the firm, by the way.

Chien owes its shareholders, such as yours truly, and the Hong Kong public an explanation.

shirley.yam@scmp.com

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This article is now closed to comments

pragmatist
In the same vein, the lamma ferry disaster compared with the recent one in south korea is illuminating!!
r6b
Ms Yam states " Shenzhen train service as the poorest performer by both the Shenzhen government and travellers - both swept under the carpet by the firm, by the way"
If it was swept under the carpet, its because this was the hand dealt to the MTR.
But MTR wants to expand its presence in China, so it will have to take the criticism and stay quiet.
The MTR took over Line 4 construction after it was begun by Shenzhen, and without the benefit of their usual pre-construction studies. Upon opening, they were overwhelmed with commuters from the Meilin Checkpoint to Line 1. Additional train sets have been ordered, but that's a 2-3 year lead-time.
Additionally, the High speed rail line between Shenzhen North and Futian stations has been delayed for 2 years - owing to the difficulty of building the underground Futian station.
Its now planned to open in Dec 2014. This means large numbers of HSR passengers are forced to disembark early and take MTR's line 4 from its Shenzhen North Station, into downtown Shenzhen . This station's platform is packed with commuters at all hours of the day and well into the evening- a significant added and un- planable load factor.
r6b
From the article >> one director said: "We rely on the management [to provide information] and the chairman [to decide what to discuss]." He could not recall how often the directors were briefed on the project. In other words these guys are political appointees, and functionally clueless.
Any business manager can walk around the perimeter of the West Kowloon Rail station construction site, where the roads change location every month, and realize the huge amount of work which remains to be done. MTR has a very good projects website, showing the progress of the main contracts for each rail line. Its all there, and very easy to read
I believe that these directors chose to remain uninformed.
Government delays have dealt the MTR a very difficult mandate - there are 4 major rail projects on-going at the same time. The Island Line extensions and South Island line works appear to be moving along nicely. We can now clearly see the stations nearing completion in Western and Kennedy Town. Scrunching all 4 projects into the same time period, is a main reason for cost increases, as it drives up demand for materials and specialized construction workers. This is government's fault for failing release funding in a timely manner, so that these 4 projects could have been build sequentially, instead of in parallel. But MTR is beholden to government, and cannot point the blame back on them without retribution.
daily
Yeah, but unfortunately, this so-called Chairman has absolutely no clue as to the horrendous delay because he just sits around looking like an old-fool and collects his director fee.
 
 
 
 
 

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