Property development profits and bus fare rises do not go together

Albert Cheng says that bus operators should follow the MTR's example and use revenues from property development to benefit commuters

PUBLISHED : Friday, 01 March, 2013, 12:00am
UPDATED : Friday, 01 March, 2013, 3:32am

Last week, I criticised the government for staging a farcical comedy with Kowloon Motor Bus in a bid to sugarcoat the reality of the bus operator's recent fare rise.

The article prompted KMB's deputy managing director, Evan Auyang, to respond, saying that the government had not supplied land at below-market rates for the company to build staff quarters and bus depots.

He also defended KMB's operating policies concerning its property development and its advertising business, RoadShow.

Auyang said the sites of former depots redeveloped by KMB's holding company - Transport International Holdings Limited - were acquired through open tender or public auction at market prices. Furthermore, he said, KMB, as the only franchised bus operator that supplies its own land for bus operations, has not charged any land rental to its franchised bus operations.

Auyang's explanation has confused the issue in question. The fact is when KMB bought those plots of land, they were zoned for industrial purposes. Take the bus maintenance centre. According to chapter five of the Hong Kong Planning Standards and Guidelines, the land is classified for industrial use only.

The company might have bought these sites at market rates, but they were meant for industrial use.

By converting the use of these plots of land from industrial to commercial/residential, the bus company certainly reaped huge profits even after paying the land premium. Yet the profits are not booked into the bus operation account, to avoid subsidising bus fares.

Under the existing franchise terms, KMB's franchised operations are required to be financially separated from its land ownership to prevent the increasing market value of land from impacting the total asset value in the franchise account. This rule is meant to ensure land value appreciation would not be translated into fare increases. But this is twisted logic.

The MTR, like many railway operators in Japan, builds railways and develops property. It then uses property development to subsidise railway operations so that commuters can enjoy fare concessions.

If this is a common practice, that means the government should review and modify the current franchise terms with bus operators to ensure that profits made from development are used to subsidise bus fares to benefit commuters. This would also help to stabilise the fare structure.

To avoid tackling the bus franchise terms can be seen as a form of government-business collusion. Where there's a will, there's a way. The problem is that the administration, led by Chief Executive Leung Chun-ying, has no sense of purpose and lacks determination to do the right thing.

Auyang also insisted that RoadShow is only one of KMB's advertising agencies, with a totally independent operation. According to Auyang, because RoadShow also handles onboard multimedia advertising for rival bus operators, KMB has to keep a distance from RoadShow in terms of operation to avoid any conflict of interest.

But if RoadShow became part of KMB, it would certainly reduce operating costs. It would eventually benefit commuters in the form of fare concessions.

Despite what it says, KMB is a beneficiary of our road infrastructure and upkeep. Other drivers have to pay first car registration tax, fuel tax and driving licence fees, all of which are charges for using the roads. Bus franchisees also enjoy an exemption from the diesel tax, but other commercial operators are excluded from this.

In the interests of the public good, the government should nationalise our bus services.

Our government should take a leaf out of the book of Transport for London, a government transport body. All London bus services are controlled and managed by the company.

Bus operators are just contractors who are paid a fixed fee to run services for the public. This way, the government can have full control over the various forms of public transport for better co-ordination, and can improve efficiency and cost-effectiveness.

And because the outsourcing is performance-based, a non-performing contractor can easily be replaced. Hong Kong needs a system of checks and balances like that of London.

Even if the government and legislature can tolerate unfair privilege, the public can't allow it to carry on. I believe the outsourcing business model is the best way forward to improve our public transport system once the three bus companies are nationalised.

With a budget surplus of HK$64.9 billion, our government certainly has the financial capacity to acquire the three bus companies and revamp their operations to benefit commuters. But can the Leung administration muster the political will and sense of responsibility?

Albert Cheng King-hon is a political commentator.