by SC Yeung
EJ Insight » Hong KongToday, 3:25 PM
A protest in 2010 against the express rail link failed to derail the project. Photos: Xinhua, HKEJ
The controversial Guangdong-Shenzhen-Hong Kong high-speed rail project has come to a critical moment.
The government is planning to apply for additional funding of HK$19.42 billion (US$2.5 billion) from the Legislative Council for the white-elephant project.
This could be the last opportunity for our lawmakers to stop the government from pouring taxpayers’ money into the project, which aims to please the authorities in Beijing rather than serve the best interests of Hong Kong.
The funding dark hole of the high-speed rail link will be capped at HK$84.42 billion, compared with Legco-approved funding of HK$65 billion.
The difference will once again be paid by Hong Kong’s taxpayers, even though the government has packaged the funding deal as a “bargain”, but it’s just a financial trick from which Hongkongers won’t benefit.
Why is the deal a financial trick?
Under normal procedures, the government needs to secure the approval of Legco for the additional funding.
If the lawmakers give the green light, the funds will be paid by the Treasury, which manages taxpayers’ money.
In an attempt to avoid public criticism for the extra funding, MTR Corp. (00066.HK), in which the government holds a 75 percent stake, will declare a special dividend to its shareholders.
The government will get HK$19.51 billion in dividends, and minority shareholders will get HK$6 billion.
The MTR special dividend will be funded by external bank borrowing, and the plan will need approval from the minority shareholders, given the government will abstain from voting in a special shareholders’ meeting.
If approvals from lawmakers and MTR’s minority shareholders are obtained, then the government seems to be getting a “rebate” from its MTR dividends equivalent to the additional funding the project needs.
But people should bear in mind that MTR is majority controlled by the government.
So, the dividend paid by MTR can be regarded as part of the public’s money.
And it is clear that the public will help MTR to repay its debt in the future.
Therefore, the additional funding, in the guise of the “special dividend”, will ultimately be provided by the taxpayers.
The deal between the government and MTR shows that both sides refuse to bear the responsibility for the project’s delays and budget overruns.
MTR, as project manager, should take the full responsibility for the delays and the resulting need for additional funding.
It would be more appropriate for MTR to use loans from banks or its own cash to pay for the additional funding required by the project.
The dividend payment plan includes a “treat” to minority shareholders in exchange for their “yes” vote.
From the public’s perspective, this funding arrangement will affect the business operations of the MTR in future, as the company will need to repay the amount it borrowed from banks to pay the dividends.
While MTR has a strong cash flow from its railway and property development businesses, the extraordinary bank borrowing for this political purpose will no doubt put pressure on the company’s financial position.
It may need to reserve cash to repay debt as interest rates increase.
The MTR could face pressure to raise its fares and reduce fare rebates.
The government should have the right to allocate the HK$19.5 billion dividend it receives from MTR to other public uses — such as social welfare, education and building subsidized homes for the poor — instead of funding the useless high-speed rail link.
Since the project was submitted to Legco for funding approval in late 2009, many activists and pro-democracy politicians have voiced their concerns, including a lack of market demand, the potential investment return, as well as the constitutionally sensitive co-location arrangement in which mainland Chinese border officials will exercise their authority in Hong Kong’s West Kowloon terminal.
All these issues emerged one by one in the past five years, and the questions still remain unanswered.
Based on the latest figures, the 26 kilometer Hong Kong section of the high-speed rail link will cost HK$84.4 billion, equivalent to HK$3.2 billion per km, compared with the 1,300 km Shanghai-Beijing high-speed railway, which cost HK$250 billion, equivalent to HK$192 million per km.
Some analysts calculated that it will need a total of 169 million passengers paying HK$500 per journey to recover the construction cost of the project.
However, government figures show the demand for the cross-border train may not be as high as expected.
The Immigration Department’s annual report says passenger traffic at the Hung Hom control point, which clears passengers on the through-train to Guangzhou, reached 4.48 million last year, edging up 0.6 percent from the previous year.
If half of these passengers take the high-speed railway in future, it could take 75 years for the government to recover the total cost of the high-speed rail project.
On Tuesday, Chief Executive Leung Chun-ying avoided the question whether the government is playing a trick to fill the project’s funding gap.
The people of Hong Kong will now have two final opportunities to stop the white-elephant project: in the MTR shareholders’ meeting and the Legco meeting.
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