Change the model for building rail projects, commission of inquiry tells Hong Kong government

A commission of inquiry investigating a construction scandal surrounding the MTR’s Sha Tin-Central link has recommended that the government abandon the model under which Hong Kong’s costliest railway project has been built when planning future railway projects. The commission also suggested establishing a new position of director of rail development to better monitor the construction of railway projects. The Sha Tin-Central Link is being built under the “concession model”, by which the government owns the railway assets, pays for the project and assumes the construction risks. The MTR Corporation was entrusted to oversee commissioning and construction. The MTR Corporation is “entrusted” by the government to manage all aspects of the project – the design, construction and commissioning of the railway. Upon completion and handover of the project, the government invites the rail operator to manage the railway service under a separate concession agreement. Under the entrustment agreement, the government will have to bear the full cost of the project, including any increase from the approved project estimates. The commission said the government should consider whether to revert to the previously used “ownership” model for future railway projects, under which the MTR Corp was responsible for funding, design, construction and operation. Under this model, the rail operator would be held responsible for any cost overruns. Former secretary for transport and housing Anthony Cheung Bing-leung said the MTR Corp did not own the project but only served as a project manager of a railway project under the “concession model”. Why is Hong Kong’s MTR hurtling from one disaster to another? “Its incentives in monitoring the progress of projects and cost control may not be as high as under the “ownership” model,” Cheung said. “There may not be enough protection for the government’s interests under the concession model.” He said future railway projects should revert to the “ownership ” model. The Sha Tin-Central link has run HK$16.5 billion (US$2.1 billion) over budget since planning began decades ago. Its total price tag stands at HK$97.1 billion, making it the city’s most expensive rail project ever. During the inquiry it was confirmed that some steel bars had been cut short during installation when they could not be screwed into couplers on the platform, in a scandal that engulfed contractors, the MTR Corp and the government. Democratic Party chairman Wu Chi-wai said the entrustment model had meant that the MTR Corp did not suffer from budget overruns. “It these projects are directly linked to the company’s revenues, it will be different,” Wu said. Since 1998, the MTR Corp and the Kowloon-Canton Railway Corporation, which it merged with in 2007, have delivered 10 major rail projects, all within their original budgets or with only small-scale overruns. Hong Kong MTR’s troubles are rooted in its identity crisis The 26km (16-mile) Guangzhou-Shenzhen-Hong Kong Express Rail Link was the first railway project built under the “concession approach”, followed by the Sha Tin-Central Link. The commission said another alternative was the creation of a special purpose vehicle with a dedicated board and delivery organisation, as have been employed on major infrastructure projects in Britain. Pro-government lawmaker Michael Tien Puk-sun said he had reservation about only changing the financing model of railway projects. “About 70 per cent of the MTR Corp’s money is ours,” Tien said. Tien, who headed the Kowloon-Canton Railway Corporation before the 2007 merger, was referring to the fact that the government has about 75 per cent of the railway firm’s shares. He said if the design of railway projects continued to be more costly than they should be it would still be the government that bears the burden. MTR Corp in dilemma over cutting-edge signal system blamed for collision Tien, who had called for the government to set up a dedicated body overseeing railways development, noted the proposal was included in the commission’s report. “Although my motion was shot down at the Legislative Council, the commission has heard it and thinks the government should consider it,” Tien said. Currently, the railway development office under the Highways Department is responsible for monitoring the construction of railway projects.