Analysts and market watchers have welcomed a plan to approve MTR extensions on the western and southern sides of Hong Kong Island but said a delay to a rail link in the north was bad news. However, it was widely agreed that the Mass Transit Railway Corporation (MTRC) would face a problem in obtaining government funding to achieve the viable return promised to its 460,000 shareholders when going public in 2000. In addition to the funding problem is the government's reluctance to offer direct financial aid. On Tuesday, the MTRC was given approval to carry out further planning on the $5 billion first stage of the West Island rail line and the $10 billion South Island line. The West Island rail line will run between Sheung Wan and The Belchers housing estate while the South Island line will be a mono-rail loop connecting The Belchers, Cyberport, South Horizons, Wong Chuk Hang, Ocean Park, Happy Valley and Wan Chai. Planning for the southern link has led to a proposed 7.5km highway project between Kennedy Town and Aberdeen - the controversial Route 7 - being placed under review. The government said the rail proposal would bring a better return at 16 per cent annually, serve a bigger population and boost tourism. However, the government's decision to postpone the North Island rail link, which would run between Fortress Hill, Tamar and Hong Kong station in Central, until after 2016 was seen as a blow to the corporation. JP Morgan analyst Edmond Lee said: 'This is clearly negative news for the MTRC, but news that is not totally unexpected.' The MTRC's share price fell 1.74 per cent to $8.45 yesterday. The government said slower anticipated growth in jobs and excess rail capacity on Hong Kong Island did not warrant the extension until after 2016. An analyst for a US brokerage said: 'Shelving the North Island link may not necessarily be a bad thing. If the project doesn't generate a viable return and still goes ahead, it will be very worrying for MTRC shareholders.' Analysts said a huge question mark was hanging over the economic viability of the South and West Island lines as the government had dragged its feet on funding new rail projects. In Legco papers to be discussed tomorrow, the government says there is still an unspecified shortage of funding for the West Island line even after taking into consideration granting the MTRC property development rights in Kennedy Town. It is understood that the South Island line requires $4 billion in government aid. Without it, the rail projects will not be able to meet a return rate of between 1 per cent and 3 per cent above the corporation's average borrowing costs. The return was promised at MTRC's listing in 2000. 'We are waiting for a number of promises made at the MTRC's listing to come true,' a fund manager for a European fund house said.