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  • Sep 18, 2014
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MTRC
CommentInsight & Opinion

How did the MTR lose its way?

Regina Ip says in hindsight, the 2010 Octopus data scandal marked the start of a string of missteps and PR disasters at what was once one of Asia's finest companies

PUBLISHED : Sunday, 08 June, 2014, 5:30am
UPDATED : Sunday, 08 June, 2014, 7:55am

Not that long ago, the MTR Corporation was hailed as one of Asia's best managed companies. In 2009, it won three awards given by the magazine FinanceAsia, including "Best Managed Company". In 2010, it won five awards by the same magazine, including "Best Investor Relations", "Best CEO" and "Best CFO".

In the summer of 2010, the MTR Corp's reputation took a big hit when it was disclosed that Octopus Cards Limited, a wholly owned subsidiary of Octopus Holdings, which is a subsidiary of MTR Corp, had been illegally selling the personal data of its customers and had made more than HK$44 million over 4½ years. The public outcry over the company's infringement of personal data privacy led to the resignation of its chief executive and enactment of legislative amendments to make it a criminal offence for data collectors to sell their clients' personal data for direct marketing without their permission.

The furore over Octopus Cards' illegal sale of personal data was a wake-up call for the MTR Corp management and the government, its majority shareholder, to beware the risks of abuse arising from complacency, greed, the relentless pursuit of profits and overexpansion. Unfortunately, as subsequent events attest, the warnings went unheeded after the controversies died down.

Launched in 1997 as a re-usable, contactless, smart card for electronic ticketing, the Octopus card was one of the earliest stored-value cards introduced and inspired many others. The MTR Corp's ability to innovate, making use of radio-frequency identification technology, was fully recognised with an award for global information technology excellence which it won in 2006, and its pride of place at the Hong Kong pavilion at the Shanghai World Expo in 2010.

Yet the fact that the Octopus card, already 13 years old by the time it was showcased in Shanghai, was the only innovation Hong Kong could boast of is, in itself, a sad reflection of the lack of innovative products coming out of the city in the past decade.

In recent years, legislators and the media alike have stepped up criticism of the MTR Corp owing to its frequent system malfunctions leading to train delays, its fare adjustment mechanism which all but guaranteed annual fare increases despite hefty profits, and its meagre fare discounts. It was not until April last year that mounting public pressure caused the secretary for transport and housing, Anthony Cheung Bing-leung, to push through a revised mechanism incorporating a higher productivity factor that effectively reduced future fare increases by 0.5 per cent.

At long last, financial penalties were introduced for train delays exceeding 31 minutes.

Yet all past controversies about the MTR Corp were dwarfed when Cheung announced on April 15 that he had been informed by the company's chief executive Jay Walder that it would not be able to complete construction of the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link in 2015 as planned.

There is nothing surprising with construction delays, especially delays in connection with large-scale projects. Yet, the way public disclosure of the delay was handled, despite the project's highly controversial history, immediately set off a maelstrom of public fury and condemnation.

The express rail project has been riddled with controversy from the start. It was announced in the 2007 policy address of then chief executive Donald Tsang Yam-kuen as one of "10 mega infrastructural projects" proposed for the city.

Since then, the tremendous cost of HK$70 billion involved in building a railway that is only 26km long, the choice of the location of the Hong Kong terminus, the plan to relocate village dwellers and indigenous inhabitants, and even the very need for the link itself, have been the subject of intense public questioning and debate.

It was, in fact, the first public works project to trigger a marathon filibuster in the Legislative Council's Finance Committee in late 2009. The project was not approved by the committee until January 2010, after a three-day siege of the Legco building by angry young people opposed to "convergence with mainland China" and "collusion between the government and property interests".

The project scored a first in sending strong signals to the authorities that all is not well in young people's perception of the relationship between mainland China and Hong Kong, and of Hong Kong's heavy reliance on infrastructural and property development to boost its economy.

Against this backdrop, it is surprising that the government and the MTR Corp chose to handle the public communication of a devastating delay in such a cavalier manner, despite the fact that a couple of local newspapers had in the past year hinted at major delays. Accusations of cover-ups and incompetence inevitably flew thick and fast.

Not surprisingly, several legislators have called for a statutory inquiry into the causes of the delay, invoking Legco's powers and privileges, and to pin down where the blame should lie.

The question is: would a statutory inquiry by legislators really cure emerging management and credibility problems at the MTR Corp?

Regina Ip Lau Suk-yee is a legislator and chair of the New People's Party

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This article is now closed to comments

pragmatist
Oddly, we have never heard any public explanation from jay walder, the ceo of MTR. Rather surprising and makes one wonder if there is more than what press has been describing.
And I must say the press has done a job sub-par in describing who is liable and what are the financial implications.
xiaoblueleaf
MTR is neither an unit of HKSAR government, nor a corporation accountable to independent shareholders or stakeholders. The HKSAR government itself is filled with do-little fat-cats and politicians not truly accountable to her citizens. Same goes with education and environment etc.
So what to do? Nothing much: MTR or HKSAR government is not accountable to her people.
22gt7
Narration of facts already known does not really help to solve the current problems of MTR. As the largest shareholder of MTR and the responsible transport administrator of HK, the SAR Government should be seen to exercise stringent control on (1) any proposed increase of fare charged by MTR by taking into account the profits arising from property developments, (2) the escalating costs of construction of current projects by requiring MTR to be held accountable for the excess costs incurred and (3) the delay of the projects carried on by MTR by imposing penalty on further delay. It is the responsibility of Legco and Exco members to oversee what actions are going to be taken by the Government to address all these issues!
ognevodd
I think Regina is better-placed to ask why the HK government has lost its steam and veered off course, why its global rankings go down and who is responsible for that.
But I do not think she will be comfortable to ask, or answer this question.
Meanwhile this ghostwritten article sounds merely like an attack to the tune of "hey, look how badly white people run our MTR, we need to appoint someone backed by the Communist Party to run it". And it will happen, eventually. Congrats.
OC2S
Well its still the best rail network in the world and according to their annual report it continues to improve. The project in question is problematic and I'm told has been a nightmare for the contactors involved. As a listed company their biggest issue (and probably only issue) is the fact that they have the govt as a shareholder who's investment objectives are in conflict with everybody else.
****www.mtr.com.hk/eng/investrelation/annualresult2013/mtr_2013_annual_eng.pdf
The Annual report tells a good story ... something that obviously doesn't sell newpapers or provide fuel the serial complainers in this town.
andreaswagner
What went wrong with Hong Kong in general? It's called mainlandization. Expect more incompetence, more corruption and cronyism, more lies.
gunzy
and more useless comments like yours
johnyuan
'The question is: would a statutory inquiry by legislators really cure emerging management and credibility problems at the MTR Corp?'
.
I don’t have a clue.
. 
MTRC is a big headache to Hong Kong. Its mixed ownership between private and government is like a runaway kid in a candy world with a rotten parent looking the other way. If the legislator’s inquiry could have the magic to change MTRC, the headache shouldn’t have developed in the first place.
.
MTRC needs to return to be the rail transport provider with single ownership – private or government.
swami.vas
The article focuses mainly on two controversial issues – the Octopus scandal and High Speed Rail delay. Whatever be the overall arguments, simply put HICCUPS are unavoidable in anybody's life! The MTR Corporation has grown in size in different directions since its inception and it now has more wings than are necessary to function efficiently as a major local transport provider. Perhaps it already has or it is high time the massive corporation is split into several units with one solely focusing on local transport. There could be another unit to handle the expanding cross border traffic. The property development sector should have a separate unit too. Another subsidiary, perhaps already there, could be for export of its technical know-how which is widely in demand elsewhere in the world. On the fare factor, one ought to bear in mind that it is a publicly listed commercial venture and is answerable to its share-holders who do expect a reasonable return on their investments. That apart, the annual increase in operational cost commensurate with inflation cannot be ignored. In other words, there is bound to be a nominal annual increase in its fare structure. All said and done, there is no doubt, despite the temporary set-backs from which it will come out with flying colors, MTR CORPORATION HONG KONG remains one of the best mass transit systems in the world!
r6b
The current MTR manager has only been on the job for about 2 years – but the politicians had established the rail construction timetables over 5 years ago.
Everyone should know that they are not “true” engineering timetables, as there is no breathing spaces in which to overcome unforeseen challenges.

This is why today, Government can only write letters to “ask” the MTR to pay for cost increases.
Example – in the contract with MTR for the HSR, there does not appear to be any meaningful statement of construction timetable nor penalties, which again suggests that everyone knew it was wishful planning at best.

Its reasonable to believe that MTR did quietly advise government that construction schedules were very optimistic, but they were told to stay quiet for as long as possible.

The current MTR managers are very different from the ones who built the Airport Express.
They did put up the fight, confronting government intimidators with actual realistic construction timelines, which MTR did fully meet.

However – today’s MTR managers have fulfilled their government handlers directives, which is why they will leave HK at the end of their contracts with full salary and bonuses, but taking the blame, so that their handlers can keep unblemished employment with the government.

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