DON'T drive dogs into a dead end alley or they'll bite back.' Those colourful words by CMB's deputy managing director, Ngan Kit-keung, reflect his family's determination to fight with a vengeance against moves by the Government to shape up the company. The stand-off between the Government and CMB shows how difficult it is for officials to deal with an under-performing monopoly providing a key public service. CMB's latest decision to sell for $382 million its Wong Chuk Hang bus depot against the will of transport officials is an open challenge to the Government, which has been plotting to reduce, if not scrap, its franchise. To the Ngan family, the Government's decision to cut its bus franchise on Hong Kong island by 26 routes in 1993 following years of public complaint over poor service was a major humiliation. The administration's recent proposal to amend the Public Bus Services Ordinance to allow it to take over a bus operator's assets to maintain a bus service was the last straw for CMB, whose current franchise expires at the end of August. Under the proposed amendments, which were endorsed by the Transport Advisory Committee (TAC) last month, the Government can take temporary possession of property used or kept by a franchised bus operator and purchase such property (except land and buildings) for the purpose of maintaining public bus services in case of emergency or revokation of franchise. While the Government says the amendments are not aimed at CMB and will apply to all bus operators, CMB sees them as part of a plan by the authorities to take over its property when its franchise runs out and allot it to a new operator, which may not be able to acquire within a short time all the hardware needed to run a bus service, even if it has the money and experience. CMB's decision to push through the sale despite the Government's disapproval was a sign that it is prepared to lose the franchise, but will do everything it can to squeeze the maximum profit from its assets. Recent developments highlighted two areas of concern in the operation of franchised bus companies - their temptation to sell their bus depots as valuable pieces of real estate and the difficulty of finding alternative operators should they fail to perform. Many of the sites purchased by CMB and KMB for use as depots decades ago are now worth billions. To both companies, the attraction of selling the sites for windfall profits that would have taken years to earn from their bus operations is too great to resist. Understandably, the public is outraged by these sales because the proceeds, with the blessing of the Government, are not used to keep bus fares down and both companies are continuing to seek fare increases. Explaining the Government's policy of allowing KMB to pocket $1.7 billion proceeds from selling two unused depots in Kwun Tong and Kwai Chung last year, Secretary for Transport Haider Barma noted that those sites were acquired by KMB at full market price and it had not been allowed to earn higher returns by revaluing them. For the same reason, there is nothing to stop CMB from pocketing all the proceeds from its Wong Chuk Hang sale. The Government's argument fails to placate politicians, who claim CMB and KMB could not have sold the sites had the Government not granted them alternative ones. The pressure has recently forced the Government to come up with a proposal requiring the bus companies to plough back a certain portion of their future land sale proceeds to subsidise bus fares so that the interests of bus passengers would not be hit. The scheme has run into problems but if it were to go ahead it is understood the portion of land sale proceeds to be used to stabilise bus fares will be small and is based on the amount of interest that would have been earned from the cash value of the land if it had not been sold. The minute amount of cross subsidy is unlikely to satisfy politicians and another furore is likely to erupt when details of the so-called fare stabilisation mechanism is announced. The second difficulty facing transport officials charged with supervising the bus companies is the administration's lack of weapons to whip into line the powerful bus operators, as is evident by the protracted wrangling between the Government and CMB. Widespread complaints against CMB's service began more than a decade ago, but repeated attempts by officials to pressure the family-run company not known for adopting modern management methods were fruitless. However, it was not until 1993 that CMB's franchise could be lopped and the operation of 26 routes was allotted to Citybus, which by then had grown into a position of strength with support from the Government. While the Government has a final say on whether to renew the franchises of CMB and other bus companies, in practice the revoking of a franchise is a decision that cannot be taken lightly. Prior to the emergence of Citybus, there was no other bus operator with the means and expertise to rival CMB or KMB. Even now, Citybus may have difficulty in taking over more routes run by CMB because it is virtually impossible for it to acquire hundreds of buses at short notice. That is why the Government is keen to push through its amendments to the Public Bus Services Ordinance. The amendments are arguably an infringement of private property rights and will certainly be opposed fiercely by the bus companies. Even if we can satisfy ourselves that the amendments are not harsh because a bus service is an essential public service, transport experts note that the taxpayers will still be the losers if the Government has to acquire the buses of operators whose franchise has been revoked. This is because it will be obliged to buy the buses at their book value, which has a 17-year depreciation schedule. Buying other old buses on the open market could be cheaper, but the Government will have no choice. Ideally, if we were to start from scratch, the Government might want to own the depots and buses and award the franchise to a bidder who promised to charge the lowest fares, provide the best service and keep the buses in good shape. Changing the operator would not be a big problem because the Government owned all the assets. In real life, history has given us CMB, KMB and Citybus. The public has no alternative but to support the Government's moves to strengthen its hand when dealing with them. Understandably, the public is outraged by these sales because the proceeds, with the blessing of the Government, are not used to keep bus fares down and both companies are continuing to seek fare increases
