MTR must escape illogical fare policy | South China Morning Post
  • Sun
  • Jan 25, 2015
  • Updated: 9:00pm
Jake's View
PUBLISHED : Sunday, 31 March, 2013, 12:00am
UPDATED : Sunday, 31 March, 2013, 2:08am

MTR must escape illogical fare policy

BIO

Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.
 

The government aims to cut the MTR's proposed 3.2 per cent increase by half, according to a lawmaker briefed on negotiations between the two sides on new tariffs.

SCMP, March 27

It's not good practice for a columnist to run the same chart twice within two weeks and, if I do it now, it's not because I'm naturally lazy (although I am) but because the point of this one needs emphasis.

What the chart tells you is that fare levels on the Mass Transit Railway are almost exactly where they were 10 years ago, while the overall consumer price index is up 25 per cent over that period.

You can now travel from one end of the MTR system, the Chai Wan terminus of the Island Line, all the way to the furthest other end, the Tuen Mun terminus of the West Rail line, for less than it would cost you to travel a single stop on the London Underground.

Yet here once again we have our legislators talking of denying the MTR a fare increase determined under a fare-setting mechanism that they themselves approved. Their objection is apparently that they now don't like the level of profits this would give the MTR and, on the part of at least one ignoramus, that the MTR's services are allegedly deteriorating.

Let's not bother trying to find the reasoning behind these arguments. I would be very surprised if there were any. It is not required of legislators in financial matters, as few if any of them understand what they're talking about in finance.

Let's approach it from a different angle. Our government listed the MTR on the stock market in 1999 out of the belief that this would make it a more efficient operator. So, at least, they said at the time. In actual fact they did it because privatisation had been the fashion in Britain 10 years earlier and Hong Kong had finally caught up with the trend.

They misunderstood it anyway, of course. The point of privatisation in Britain had been to free the government of the burden of a loser railway system by putting it in hands that could (and did) make it work properly again. Our bureaucrats never contemplated giving up control.

They also misunderstood the pricing of investments. They thought at first that they could get at least book value for the system and only discovered after committing themselves to the listing that their low-fare policy would only give them a fraction of that valuation.

The solution was a huge land bribe that made up the difference and also made MTRC stand for Modern Town Redevelopment Corporation. The most obvious example of this is that soaring fortress circle of unrestricted development directly behind the West Kowloon Reclamation.

The MTR has never really fitted well with the stock market. The listing has frequently hindered the government's transport policies, most notably in the MTR's acquisition of the Kowloon-Canton Railway.

This one was much delayed and then done through a hugely awkward structure in order to avoid recognising a big loss on acquisition. I still suspect that there was some dubious but officially sanctioned market-rigging to get the minorities to approve it.

And now the MTR continues to risk lawsuit by minority shareholders who thought they had a firm deal on fare levels only to see it threatened by populist politics again.

But there is one good way out of this conundrum for our government - delist the stock. Buy out the remaining minorities and take 100 per cent control once more.

The MTR should never have been listed in the first place. Let's undo this mistake.

jake.vanderkamp@scmp.com

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