Hong Kong’s MTR Corporation could receive about HK$370 million (US$47.72 million) from the government in compensation for losses suffered through the nearly year-long suspension of its high-speed cross-border service due to the Covid-19 pandemic, a former rail boss said on Saturday.
Former chairman of the Kowloon-Canton Railway Corporation (KCRC) Michael Tien Puk-sun, also a pro-establishment lawmaker, said the operating agreement between officials and the MTR Corp guaranteed the company would not bear any out-of-pocket costs even if the link recorded zero passengers for months.
The MTR Corp, 75 per cent owned by the government, is required to pay the KCRC, which is wholly government-owned, HK$2.7 billion over 10 years for the right to operate the connection.
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Under a profit- and risk-sharing mechanism, the KCRC steps in if the difference between projected and actual passenger flows exceeds 15 per cent, by absorbing 70 per cent of losses incurred or 70 per cent of profits earned.
Tien said he understood that under the deal, the government and the MTR Corp initially projected the HK$84.4 billion Guangzhou-Shenzhen-Hong Kong Express Rail Link would record a daily ridership of about 25,000 people, for an annual passenger flow of around 9 million. So if the yearly ridership dropped below roughly 7.7 million, the government would have to share the risk, he said.
About 1 million passengers used the service in January before it was forced to close, so he estimated the difference would be about 6.7 million and the compensation for each trip stood at HK$80 (US$10).
“The government will have to make up the losses for 70 per cent of that 6.7 million ridership by paying HK$80 for each trip. So the rough figure should be about HK$370 million,” he told a radio show.
Before the link opened in September 2018, Hong Kong transport minister Frank Chan Fan expressed confidence it would be profitable from day one and not incur losses.
But the service suffered a sharp drop in the number of mainland Chinese visitors following months of anti-government protests in Hong Kong. In 2019, its daily ridership shrank to 46,400 from 53,000 in 2018 – far short of the government’s projection outside the risk-sharing deal of 80,100.
The pandemic also has kept the rail link closed since late January.
As the MTR Corp had to pay HK$270 million to run the service every year, the actual amount the government would need to fork out would be about HK$100 million, Tien said.
“Is the MTR Corporation taking advantage?” he said. “Its utility expenses amount to about HK$100 million per year. That means the MTR Corp could break even.
“But during the pandemic, the landlord [the government] waives your rent [for operating the link] and gives you some subsidies to help you, the operator, break even. I guess the MTR Corp is the only business that can enjoy this.”
The 26km link joins a section across the mainland border that connects to 58 cities. It cuts travel times to 19 minutes to Shenzhen and 47 minutes to Guangzhou.
A spokesman for the Transport and Housing Bureau said the KCRC could bear part of the risk under the mechanism, given the rail link was suspended for 11 months. He said the KCRC and the MTR Corp would later confirm the actual patronage last year and discuss the relevant payment arrangements.