Who should take responsibility for rail project budget overruns?

February 05, 2016 16:31
Hong Kong's high-speed rail link has suffered from chronic delays and budget overruns. Photo: HKEJ

On Monday, 99.83 percent of MTR Corp. (00066.HK) minority shareholders voted in favor of a plan to continue construction of Hong Kong's high-speed rail link.

MTR chairman Frederick Ma Si-hang declared it a big victory and urged legislators to approve additional funds for the project.

Under the plan, the government will pay for HK$19.6 billion (US$2.52 billion) in cost overruns related to the express rail project.

The amount will later be repaid by the MTRC through a special dividend.

The MTR will have to foot the bill for any overrun in costs above HK$84.4 billion.

In fact, the MTR, as the project manager, should take responsibility for delays and cost overruns.

Meanwhile, the company has kept raising MTR fares although it has reaped fat profits year after year.

And the MTR has put minority shareholders at risk, as it decided to borrow money to pay the special dividend.

Anthony Cheung Bing-leung, the secretary for transport and housing, stressed that the deadline for approving additional funding for the rail link arrives at the end of this month.

He warned that Hong Kong would pay a heavy price if the project fails to be completed.

Lawmaker Wong Kwok-hing of the Federation of Trade Unions said that if the project is halted owing to lack of funding, as many as 5,800 construction workers will become jobless immediately. A total of up to 7,700 workers could be affected if the project is suspended, he said.

Since late last year, government officials have repeatedly emphasized that the rail link project should not be suspended.

Apart from becoming an international joke, the government would lose the initial investment of HK$65 billion and need to spend a further HK$10 billion to clean up the mess.

All these remarks reminded me of a recent scandal at a local home renovation company.

Customs officials arrested three board members and employees of the firm under the Trade Descriptions Ordinance for unfair trade practices.

The complainant, a homeowner, reportedly agreed to pay the company HK$170,000 to renovate his flat.

However, the complainant was eventually charged a total of HK$790,000 after the firm expanded the project without gaining his approval in advance. 

The case is similar to the high-speed railway project, the budget of which has been increased from HK$65 billion to HK$84.4 billion.

The home renovation company made misleading and murky quotes for the cost of the project.

In the case of the high-speed railway project, the government said the additional funding was necessary because of insufficient exploration and careless budgeting.

The issue of co-location of Hong Kong and mainland immigration officials is still pending.

Former transport minister Cheng Yu-wah guaranteed that there won’t be any cost overrun.

MTR has made various excuses, including blaming heavy rain and hard rock for delays in the project.

As a result, taxpayers in Hong Kong have become an ATM for the rail link.

Ma warned that there would be a catastrophic aftermath if the rail link project is suspended.

The HK$65 billion is sunk cost that can’t be recouped.

We have to think carefully if the additional cost is worthwhile.

The government has decided to bypass the normal Legislative Council subcommittee and forward the funding debate to its Finance Committee, so as to speed up the processing of the funding application.

How will that affect procedural justice?

This article appeared in the Hong Kong Economic Journal on Feb. 5 under the pen name Bittermelon.

Translation by Julie Zhu

[Chinese version 中文版]

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