South Island Line and MTRC’s inconvenient truths

Frank Chen January 10, 2017 16:59

Hong Kong has welcomed its first new rail line in more than a decade – the long-awaited 7.4-kilometer South Island Line, linking Ocean Park, Wong Chuk Hang and Ap Lei Chau with Admiralty, which was inaugurated at the end of last month.

Yet, the maiden journey was somehow marred by a power glitch near the brand-new Lei Tung station that caused a blackout and slowed trains for about an hour.

And, if you think spacious platforms, ample train coaches and other features synonymous with the MTR standard is a matter of course for the new project, the lime-colored South Island Line may turn out to be a big letdown.

Words like “small”, “narrow”, or “cramped” dominate the initial feedback from riders and train enthusiasts. Trains on this medium-capacity line have only three cars compared with eight-car trains on other key lines.

Some even say the platforms of the aboveground Ocean Park and Wong Chuk Hang stations are barely larger than those for the 129-year-old funicular Peak Tram running through Mid-Levels.

Note that Ocean Park, one of Hong Kong's most popular attractions, receives 7-8 million visitors a year; a small station, serving such a major amusement park may become a bottleneck during peak seasons.

South District councilors say the capacity issue of the new line has been there since day one, and with new residential developments in the pipeline, the line may fail to cope with the increasing transport demand in the near future when the population in the district is forecast to rise to 350,000.

But as for MTR Corp., its reason for not building a heavy rail line in the first place is “insufficient ridership”.

Infrastructure developments are ought to be forward-looking to anticipate demand in the decades to come, but unfortunately, the “miniature” South Island Line does not belong to this category.

The rail giant’s plight arising from other image projects may be blamed for the not-so-impressive new line.

From South Island Line to West Kowloon

What the Hong Kong railway operator is not willing to say is that MTRC has been hobbled by project delays and cost overruns, in particular with the express rail link, which is now like a financial black hole.

MTRC has for years grappled with a long train of fiascos in the 26-km local section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link, of which the commission date has been postponed multiple times, each time with a higher price tag. The budget-busting West Kowloon Terminus alone, the epicenter of the entire scandal, now costs over HK$12.2 billion.

In November, the government agreed to adjust the Program to Complete to the third quarter of 2018, including a six-month buffer period, and to cap the Cost to Complete at HK$84.42 billion, a third higher than the original estimate.

When the government has refused to pump in more money and the rank-and-file cry foul over persistent fare hikes, MTRC has to foot the bill itself and thus is forced to squeeze investment in other new projects like the South Island Line and the 17-km Shatin to Central Link, set to be operational by 2021.

Financial woes

MTRC is no longer on a solid footing with its finances. Weighted down by a deep plunge in profit from local property development – HK$219 million in the first half of 2016 compared with HK$2.811 billion a year ago due to fewer homes put up for sale – the company saw its half-year profit fall 38 percent to HK$5.12 billion, according to its latest interim report.

Because of the special dividend payable to the Express Rail Link agreement with the government, its single largest shareholder, net assets decreased 15 percent to HK$145 billion and current net debt ratio stood at 8.6 percent.

The firm has also conceded in the long back-and-forth over the fare adjustment mechanism, a direct-drive formula in place for almost a decade that has guaranteed stable fare increases each year. The highest fare increase was 5.4 percent in 2012.

Hong Kong commuters have to dig deeper into their pockets when MTR fares, already among the world’s most expensive, keep surging. A journey from Tuen Mun to Central, for instance, now costs HK$28.50.

Revenue from transport operations contributed almost 30 percent of MTRC’s overall profit, up 6 percent to HK$8.68 billion in first half of 2016, when the firm hitched up fares by 2.65 percent last summer, the seventh year in a row.

Yet, the government has prodded the railway operator to hasten the review of the mechanism and it’s believed that fares are more likely to fall or be frozen when a new formula is in place later this year.

The still cash-rich MTRC now has to adopt more stringent financial measures, as seen in the construction of the South Island Line, when uncertainties cloud its profitability.

The company has also announced to procure more China-made trains to progressively replace the British-made rolling stock currently serving Island Line, Kwun Tong Line, Tsuen Wan Line and Tseung Kwan O Line as the latter is reaching the end of its service life. The Chinese state-owned CRRC Corp. Ltd. beat all bidders to bag the HK$6 billion order for 93 new trains, reportedly with the highest price discounts on offer.

Yet, even well before these new trains start rolling in, safety has already been a cause for concern after Singapore’s MRT found hairline cracks in key structural components of similar CRRC-made trains.

MTRC categorically denied any dereliction in the tender after the revelation and defended its decision to award the contract to the Chinese manufacturer.

– Contact us at [email protected]

FC/RA

Read more:

No easy ride: What you may not know about MTR’s bylaws

Frank Chen

EJ Insight writer