Hong Kong MTR

High-speed rail link delay highlights need for MTR management shake-up

Shock delay on building high-speed line to Shenzhen brings calls for MTR management shake-up

PUBLISHED : Friday, 09 May, 2014, 3:17am
UPDATED : Wednesday, 26 October, 2016, 2:38pm

Anger over a two-year delay in completing work on the high-speed railway to Shenzhen has brought demands for management changes at the MTR.

The corporation caused an uproar last month when it said construction problems had pushed back the opening of the HK$67 billion line to 2017 and it would be billions of dollars over budget.

The announcement led transport chief Anthony Cheung Bing-leung to say he had "over-trusted" the corporation's progress reports and to pledge more supervision. He joined activists and politicians in saying that the government - which owns a 77 per cent stake - should take more control of the company. Some suggested the government should take back full ownership of the corporation.

The company is accused of hiding facts and dragging its feet. Heads have started to roll.

First the project director and top engineer quit. Then some lawmakers warned that a government inquiry would be a whitewash. Last Friday, two hours after it was announced a former University of Hong Kong pro-vice-chancellor would lead the probe, he resigned, with the government conceding he was a non-executive director of an MTR contractor.

Then it was the turn of corporation CEO Jay Walder, with chairman Raymond Chien Kuo-fung saying the executive would step down when his contract expired next year. A Transport and Housing Bureau report for lawmakers said Walder had persuaded officials not to flag up a possible delay in November. Walder told Cheung it was still feasible the line would be finished by the 2015 deadline.

Walder, an American who was finance and planning chief for Transport for London, then chief of New York City's Metropolitan Transportation Authority, took the Hong Kong job in 2011. He would not answer questions at a public appearance on Thursday.

The muddle has added fuel to critics' claims that the corporation is in need of a management shake-up.

Richard Tsoi Yiu-cheong, of the Coalition to Monitor Public Transport and Utilities and Democratic Party vice-chairman, says the MTR has become a "convoluted monster" that has to be taken back under the government's wing.

Corporate governance activist David Webb says the communications disaster is a result of the government's dual role as shareholder and business partner.

"There are conflicts of interest for the government between being a substantial shareholder on the one hand, and being a party to contracts with the company, including land grants and railway operating leases," Webb says.

He says a solution depends on whether the government is willing to use free-market principles to make the transport system more efficient.

"If the answer is yes, then in a free market, the government should not be a shareholder, just a regulator, and all competitors should be free to set their own fares and compete on service," Webb says.

"If the answer is no, then in a centrally planned transport system, the government might as well own the whole thing. The current situation is just a fudge."

Even if the governing structure is changed, some observers say the government should not run the corporation.

Jeffrey Chan, chairman of the Hong Kong Securities Association, says making it a government entity would not be in the public interest.

"The corporation is making profits every year. The government, as its majority shareholder, also benefits," he says.

Legislator Ng Leung-sing, an MTR Corp board member, initially defended its handling of the delay and said no changes should be made. But he now sees the need for some reform.

"If we learned about the delay earlier and did not talk about it, then we are hiding information from the public," Ng says.

Board member and lawmaker Abraham Razack also wants change.

The Pandora's box was unlocked last month when Cheung expressed surprise when announcing the delay, saying he had only just found out about it.

Critics said he was just trying to distance himself from the scandal.

Several pan-democrat lawmakers complained that the delay was a cover-up and suggested officials knew about it.

The company blamed a severe rainstorm in March for damaging a tunnel-boring machine. Crews had also had trouble digging through rock and boulders at the West Kowloon terminus and encountered delays negotiating marble caverns under a protected wetland area near the border, it said.

A government source says Cheung and other senior officials felt they had been "misled" after being told in November that everything was on track for a 2015 finish, despite reports the project could be delayed at least a year.

Many see the root of the problem being the "half-public half-private" status of the corporation. The MTR Corporation was established in 1975, with the government as sole shareholder. The government sold off a 23 per cent stake in 2000 in an initial public offering. In 2007, the corporation merged with the government-owned Kowloon-Canton Railway Corporation.

Today the MTR system carries an average of 5.2 million passengers every weekday. But much of the corporation's business lies elsewhere. Its web of business activities also includes housing and commercial projects, advertising, telecommunications and international consultancy.

Dr Chung Kim-wah, assistant professor of social policy at Hong Kong Polytechnic University, says the MTR must be more responsive to public concerns. "The half-public half-private model has raised the public's expectation of its performance," he says. "But what actually happens is the MTR people can easily hide behind the government and when things turn ugly, more often it is Anthony Cheung who comes out to explain to the public."

Some critics say the corporation's communication problems stem from its 15-member board.

New People's Party legislator Michael Tien Puk-sun, who was KCRC chairman in the early 2000s, says the government should overhaul the board by appointing more people to monitor management. Tien says the lack of engineering knowledge among board members could be a reason why officials were in the dark about delays. They might not have enough technical expertise to understand them.

With the exception of architect Edward Ho Sing-tin, the members do not have a strong background in engineering or surveying. Three of the directors are government officials - Cheung; Secretary for Financial Services and the Treasury Chan Ka-keung; and Commissioner for Transport Ingrid Yeung Ho Poi-yan.

Some critics wondered if the corporation's sudden announcement about the delay might have breached the Securities and Futures Ordinance. It requires company directors to immediately announce any information that could affect a stock's price.

Webb says "a delay in a major project would probably be price-sensitive".

But the Hongkong Securities Association's Jeffrey Chan says a project delay would not be considered "price-sensitive" information. "We are not talking about a terrorist attack against the rail system that would affect the company's operation and ability to make profit," he says.

The corporation's share price dipped slightly after news of the delay but has remained largely stable at around HK$29 since then. Its revenue rose 8.3 per cent to HK$38.71 billion last year, with a reported profit of HK$13.03 billion.

Tsoi, of the Coalition to Monitor Public Transport and Utilities, says the MTR's operations might be too big for the government to oversee.

"With over 20,000 employees, it's a very big company," he says. "The systems it is running and the technology it employs are highly sophisticated and could be beyond officials' command."

Tsoi suggests the government buy back the corporation. Webb agrees it is a possibility, adding that the corporation has become more of a "policy tool" than "an independently managed entity".

"The government could offer to buy out the minorities," he says.

"When the MTRC was floated in 2000, there was the promise of an independently managed entity with fare autonomy. But this autonomy was stripped away in 2007 during the so-called merger. The government has also interfered with the timing of property projects… so the MTRC is very clearly a policy tool."

Dr Hung Wing-tat, an associate professor in Polytechnic University's department of civil and structural engineering, warns that there could be red tape and inefficiency if the government was to buy back the corporation.

"A major reason for the government to corporatise the KCRC was to brush up efficiency," Hung says. "It would defeat the purpose if the government again took control."

Hung says the government, as the major shareholder, has the power to act when it feels things are not going in the right direction.