Hong Kong taxpayers to bail out MTR for express rail link to Guangzhou: Government hopes Legco will agree to HK$19.6 billion in extra funding
Corporation will receive extra funding of HK$19.6 billion for express link to mainland, but will offset that by paying special dividend
The MTR Corporation will be bailed out by taxpayers upfront for the cost overrun of the long-delayed, high-speed rail link to the mainland, but the troubled operator plans to offset the amount by paying the government, its majority shareholder, a special dividend.
Under a controversial agreement announced on Monday, the Guangzhou-Shenzhen-Hong Kong Express Rail Link will be completed in the third quarter of 2018, with the cost revised to HK$84.42 billion - HK$880 million less than the corporation's last estimate.
The government hopes to persuade a highly sceptical Legislative Council to approve the HK$19.6 billion in extra funding by February. Almost exactly the same amount should eventually be recouped through a special dividend to be paid by the MTR.
"I must stress that this agreement … does not mean that the government is satisfied with the corporation's performance as project manager," Secretary for Transport and Housing Professor Anthony Cheung Bing-leung said yesterday. He stressed that the government reserved the right to take legal action against the rail operator over the delays and cost overruns after the mega project is completed.
If lawmakers on the Finance Committee reject the funding request, the 26km railway line linking West Kowloon to Guangzhou will stop in its tracks. It has already cost about HK$50 billion and is 75 per cent finished.
For its part, the MTR has agreed to pay dividends totalling HK$25.76 billion at the rate of HK$4.40 per share - four times last year's payout - in two stages.
The government, which holds 75 per cent of MTR shares, will get HK$19.5 billion, while other shareholders will pocket an unexpected bonanza of HK$6.2 billion.
While this is subject to approval by MTR shareholders, Legco's deputy transport panel chairman, Tang Ka-piu, said it would "definitely" get the green light as no shareholder would reject such a windfall.
In addition, the MTR has also agreed to bear any further cost overruns above the final agreed total of HK$84.42 billion.
"Despite the works delay and cost overrun, we should not give up the project easily and suspend or even terminate the contracts as the consequences of such a scenario will be catastrophic, causing billions of dollars of losses in contractors' claims and maintenance costs," Cheung said.
MTR Corporation chairman Dr Raymond Chien Kuo-fung denied the rail operator was effectively footing the bill, insisting that the special dividends were going to shareholders and not the project itself.
The MTR will borrow money to fund the special dividends. Chien also said the MTR was financially sound with capital reserves of HK$68 billion.
Lawmakers were quick to criticise and raise doubts about the deal yesterday.
New People's Party deputy chairman Michael Tien Puk-sun, who chaired the Kowloon-Canton Railway Corporation before it was merged with the MTR in 2007, described the agreement as a "trick", saying the government could have used the money for other needy issues rather than being forced to spend it on the project.
Labour Party chairman Lee Cheuk-yan said the ultimate loser was the taxpayer.
Gary Fan Kwok-wai of the NeoDemocrats vowed not to approve the funding request, in a sign that the project still has a rocky road ahead.
The vital statistics for Hong Kong's high-speed rail link to Guangzhou
Total cost of the rail project has risen to HK$84.42 billion from HK$65 billion.
Opening date of the rail project to be postponed to Q3 in 2018 from 2015.
Hong Kong government to pay HK$19.42 billion in existing extra costs.
MTR to pay the government HK$19.51 billion in special dividends.