Jump to ContentJump to Main Navigation
Moving MillionsThe Commercial Success and Political Controversies of Hong Kong's Railway$

Rikkie Yeung

Print publication date: 2008

Print ISBN-13: 9789622098824

Published to Hong Kong Scholarship Online: September 2011

DOI: 10.5790/hongkong/9789622098824.001.0001

Show Summary Details
Page of

PRINTED FROM HONG KONG SCHOLARSHIP ONLINE (www.hongkong.universitypressscholarship.com). (c) Copyright Hong Kong University Press, 2020. An individual user may print out a PDF of a single chapter of a monograph in HKSO for personal use. Subscriber: null; date: 06 April 2020

Leading Railway Builder versus Controversial Project Manager

Leading Railway Builder versus Controversial Project Manager

Chapter:
(p.161) 7 Leading Railway Builder versus Controversial Project Manager
Source:
Moving Millions
Author(s):

Rikkie Yeung

Publisher:
Hong Kong University Press
DOI:10.5790/hongkong/9789622098824.003.0007

Abstract and Keywords

Part III of this book compares the experiences of the MTRC and the KCRC in new railway and property development. This chapter compares the strategies and experiences of new project governance of the MTRC and the KCRC. Differences in project management strategies and political situations account for the KCRC's public controversies in railway projects. Both corporations went through an internationally unique experience during the Sino-British row over new railways; and they did not deal with those challenges in the same way for different reasons. In particular, both the Airport Railways and West Rail cases were related to Sino-British diplomatic tensions over Hong Kong's political transition but handled very differently.

Keywords:   property development, MTRC, KCRC, project management, Sino-British row, Hong Kong, Airport Railways, West Rail

Part III compares the experiences of the MTRC and the KCRC as project managers in railway construction and property development. This chapter focuses on railway projects and the next chapter on property development and environmental issues in new projects. On the whole, the MTRC is successful as a leading railway builder in Hong Kong and internationally whereas the KCRC faced quite serious controversies in its major railway projects in the past. Differences in new project management strategies offer only part of the explanation for the contrasting experiences. The two public railway corporations developed new railways under different political, social and economic motives during changing times; as well as varying government policies in particular projects. How the corporate leadership responded to the specific external challenges and interacted with the government policies was crucial to successful railway project management is to be illustrated by the cases in this chapter: the MTRC’s Airport Railways, Tseung Kwan O Extension and the Disneyland Resort Line; the KCRC’s Light Rail and West Rail; and the two railways’ competition over the Shatin-Central Link project. In particular, both the Airport Railways and West Rail cases were related to Sino-British diplomatic tensions over Hong Kong’s political transition but handled very differently.

MTRC as a Leading Railway Builder

The MTRC is the leading builder of modern railway systems in Hong Kong. Thanks to its corporate strategy of internalising project management since construction of the original MTR network, the MTRC maintains high professional autonomy and keeps up with international standards as a railway project manager. Building railways is more than about technical competence and sometimes aims not purely at satisfying public transport needs. As a commercial-oriented public railway, the MTRC met multiple challenges of satisfying government policies, managing community relations and mitigating negative environmental impacts while achieving financial and profit objectives. Any railway organisation around the world must cope with conflicting concerns (p.162) in new railway projects. But much of the MTRC experience in new project management was unique to Hong Kong as this chapter illustrates. The first example is the MTRC's unusual involvement in Sino-British diplomacy for over six years.

Handling Diplomacy: The Airport Railways

The Airport Railways were part of the new airport programme, the largest infrastructure programme ever undertaken in Hong Kong in the 1990s. It provides two different passenger services running on basically the same track: (a) the Airport Express Line offering a premium-priced high-speed rail service from Central to the Hong Kong International Airport at Chek Lap Kok on Lantau Island; and (b) the Tung Chung Line providing a less expensive crossharbour commuter service from Central to the Tung Chung New Town near the airport. The Airport Railways development straddled 1997 from the Mathers era to So. It was an internationally unique case of a six-year diplomacy between the British and Chinese governments for developing an airport. The MTRC was confronted with special challenges of constructing a world-class railway system amidst problematic diplomacy and political divisions.

A political project

The Airport Railways project began in October 1989 with Governor David Wilson's announcement in his Policy Address that the government would build a new international airport at Chep Lap Kok and associated projects including a ‘high-speed railway’.1 Branded as a ‘rose garden plan’, the new airport programme aimed to boost the low public confidence after the June Fourth tragedy and to demonstrate the colonial administration's commitment to proper governance of Hong Kong. It was regarded as a largely political decision. The idea of relocating the old airport to Chep Lap Kok was first mooted in the late 1970s but was shelved in 1983.2 The new airport plan 1989 invited immediate suspicion from Chinese leaders and pro-Beijing personalities that it could be a British plot to drain the financial resources of the post-1997 government.3

In December 1989, the government invited the MTRC to submit feasibility proposals to design, construct, finance and operate an Airport Railways system. The MTRC's corporate priorities were immediately altered by the new project. It had to delay an original plan to retire outstanding debts.4 The MTRC's initial study in April 1990 showed that the commercial viability of constructing the Airport Railways was questionable due to exorbitant costs and need for incurring huge debts.5 On the positive side, the Airport Railways presented the MTRC an opportunity to enhance its world status as a leading railway (p.163) operator and to relieve congestion on the MTR cross-harbour service. It would also strengthen the MTRC's property development business.6 Granting generous property development rights along the Airport Railways was an acceptable financial solution to the government and the MTRC. By late 1990, the Hong Kong government had more or less confirmed the intention to build the Airport links.

A Six-Year Sino-British row

The financing plans for the new airport and the Airport Railways would require the Chinese government's support. Otherwise, the international financial market would not be willing to lend to the MTRC (and the new Airport Authority (AA)) any loans straddling 1997. In July 1990, British minister Francis Maude failed to secure China's endorsement in his visit to Beijing.7 In October 1990, the British and Chinese governments started the six-year negotiations on the airport.

The first phase of the Sino-British talks over the projects from October 1990 to September 1991 was held when the Chinese communist government's relationship with Western democracies was tense after June Fourth. By May 1991, six rounds of fruitless diplomatic talks had been held, mostly in Beijing. British Foreign Minister Hurd and Governor Wilson visited Beijing respectively but both failed to obtain any agreement.8 To resolve the airport deadlock, in June 1991 British Prime Minister John Major resorted to secret diplomacy at China's request and sent special foreign affair advisor Percy Cradock to Beijing.9 In September 1991, the two countries signed a Memorandum of Understanding (MOU) on the airport programme in Beijing. Quite reluctantly,10 John Major became the first Western leader visiting Beijing and shaking hands with the unpopular Chinese Prime Minister Li Peng after June Fourth. The MOU covered several broad agreements relevant to the Airport Railways. First, the Chinese government would support the construction of the airport projects and the railways. Second, Britain would consult China in a new Airport Committee under the Joint Liaison Group before the Hong Kong government granted franchises and guarantees for debts straddling 1997; and China would give response within one month. Third, the Hong Kong government could borrow under HKD 5 billion without formal consultation. Fourth, Hong Kong would establish an Airport Consultative Committee of no decision power and China would have a say in the membership. In November 1991, the 50-member Airport Consultative Committee (later expanded to 60) was appointed from different sectors.11

The MOU derived from the secret diplomacy was soon proved to be not the solution as the Sino-British row entered its second phase from September 1991 to September 1992. In January 1992, the MTRC finished negotiations with (p.164) the government on funding and technical planning. An agreement-in-principle was signed between the government and the MTRC to design, construct, and finance as well as operate the Airport Railways, and designate an opening date (in line with the new airport) before the British government's departure in mid-1997.12 By April 1992, the government had agreed with the MTRC's financial proposal of injecting government equity into the Corporation by way of upfront payment and callable equity, deferring dividends until 2001 and granting 60 hectares of land for property development. 13 (Table 7.1 summarises the financial packages proposed in different rounds of the talks.) In this proposal, the MTRC would upgrade the Airport Railways to be the world's most modern railway system and the project cost would thus nearly double from the previous estimate of HKD 12.5 to 22.16 billion (1990 prices). The MTRC's financial proposal received fierce criticism from Chinese officials and caused another deadlock in the airport talks. China queried the increased costs as well as the financial implications of callable equity and deferred dividends to the future HKSAR government.14 Another war of words through the media was waged between the Chinese, British and Hong Kong officials; this escalated political divisions and quarrels among different factions in the Airport Consultative Committee and LegCo.15 Beijing did not give a formal response within one month as promised in the MOU. Senior officials from Beijing and Hong Kong openly accused each other of causing the deadlock.16 The deadlock forced the MTRC to postpone a bond issuance plan in the US.17 The MTRC executives defended the scale and cost of the Airport Railways project, saying that they could not be reduced without adversely affecting the profitability of the future railways.18

The arrival of the last governor, Chris Patten, in July 1992 signified the third phase of talks from September 1992 to June 1993. Patten promised to safeguard Hong Kong interests and be more transparent in the Sino-British negotiations because the Hong Kong people had so far been kept in the dark.19 The Chinese government felt antagonised and reacted with non-cooperation and more criticism. In September 1992, the Hong Kong government revealed to the public the second financing package forwarded to the Chinese side20 (Table 7.1). The revised package already took into account Beijing's unofficial comments made to the media. But the proposal still met with strong criticism from China because the HKSAR's future share of the Land Fund would be deployed.21 The atmosphere was further intensified by Patten's criticism of China for causing the delay. China postponed Patten's first visit to Beijing.22 After Patten announced the constitutional reform package (Chapter 2), the Airport Committee meeting in October 1992 ended in hostility when both sides accused each other in public of breaching agreements. The airport talks came to a total standstill until June 1993.23 The MTRC cancelled another long-term debt issue and postponed tendering of the Central reclamation contract, a critical step in the Airport Railways construction timetable.24 The Corporation admitted that the railways could not be opened before mid-1997. In February 1993, the (p.165)

Table 7.1 Financing Proposals of the Airport Railways Discussed during the Sino-British Talks*

($ Billions)

Original — April 1992

2nd package — September 1992

Final — based on the 4th package in June 1994

Equity injection

$3.7

$18.7

$23.7

Callable equity

$12.5

nil

nil

Maximum debt

$36

$17

$12 (total debt for the MTRC and AA capped at $23)

Debt repayment by

2010

2006

2004

Resume dividend in

2001

1997

1997

(*) The MTRC submitted revised proposals to the Hong Kong government in February 1993 and the HKG submitted the third package in May 1993 but no details of both proposals were revealed to the public.

MTRC submitted to the government another financial proposal and requested more equity due to the delays in raising debts.25

The final phase of the Sino-British airport row from June 1993 to June 1995 began after the Hong Kong government had forwarded the third financing proposal with not many details released to the public in advance.26 The Airport Committee resumed meetings in June 1993. The differences between both sides were narrowed in several rounds of talks.27 But the road to an agreement was still bumpy. The Chinese side's main concerns were that: (a) the proportion of government equity should be increased and debts be decreased in the financing package; (b) the MTRC debt should be treated as government debt and thus Beijing's agreement was necessary; and (c) the MTRC management was expatriate-dominated.28 However, the Chinese side no longer insisted on cutting down the proposed budget for the project. In June 1994, Mathers announced his retirement and cleared the way for localisation. In February 1994, the Hong Kong side forwarded the fourth proposal of little transparency to the public until a positive response from China was likely in July.29

While the talks were continuing, Hong Kong speeded up the preparation for building the Airport Railways and the airport, amidst Chinese criticism of acting before their consent.30 The government sought special funding approval from LegCo in September 1993, January 1994 and May 1994 to conduct advance works for the project.31 The MTRC had to reimburse the funds to the government after the financing agreement was reached. The Corporation started awarding contracts for the Central reclamation in August 1993 and invited property development tenders in September 1994.32 In April 1994, the MTRC announced that the Airport Railways could only be opened in early 1998 even if the diplomatic talks went ahead smoothly.33

(p.166) On 4 November 1994, Britain and China finally signed an Agreed Minute of the Airport Committee, indicating a bilateral accord on the financing of the airport and the Airport Railways. The Hong Kong government agreed to increase the upfront equity to HKD 23.7 billion, reduce the maximum debts to HKD 12 billion, advance the debt repayment year to 2004 and the proposed railway land use (Table 7.1). Mathers could finally implement his international fund raising plans. But he did not witness the signing of the bilateral Financial Support Agreements in June 1995 before his retirement in March that year.

Full-speed construction

After the Sino-British agreement in November 1994, Hong Kong proceeded with the airport projects at full speed. LegCo immediately approved the government's equity injection plan.34 In early 1995, Jack So took over from Mathers to lead the railways construction. Within months, the MTRC rapidly tendered and awarded construction contracts, mostly to overseas companies.35 The Corporation displayed efficient project management and professionalism in the construction phase, which was largely uneventful except for occasional incidents.36 Despite full-speed implementation, the Airport Railways could not be officially opened until June 1998.37

The Airport Express started operation on the new airport's opening day of 6 July 1998. In the first month of operation, the Airport Railways experienced ‘teething problems’ as Jack So described.38 Some ticket machines broke down, a Tung Chung train entered the airport, and some trains were delayed. In one embarrassing episode, top MTRC executives were delayed in attending an official function by an Airport Railway service disruption.39 But any inconvenience on the railway was pretty minor as compared to the new airport fiasco, which included loss of passenger luggage and a standstill of cargo for days; and that subsequently led to three official investigations.40 After the initial chaos, the Hong Kong airport is now regarded as one of the top international airports and the Airport Express a world-class railway system.

Tricky roles for the MTRC

The MTRC's experience in the Airport Railways project was exceptional. To what extent could the MTRC exercise its autonomy in this railway project? On the one hand, the Sino-British diplomacy was beyond the MTRC's jurisdiction as it was not even a formal party in the negotiations. On the other hand, the financial proposals made by the MTRC were critical input contributing to the diplomatic deadlocks and breakthroughs. On the one hand, the MTRC's professional autonomy was reduced to the extent that it could not proceed with its work plans due to over-riding politics. On the other hand, it gained operational autonomy in making all critical project decisions as the public (p.167) became impatient and wanted to see the Airport Railways implemented without further delay.

Sino-British talks had been in a deadlock on the financing arrangement for so long that other public interest questions on the Airport Railways had not been thoroughly debated. Fundamental questions about the project's scale and costs, for instance, were briefly raised but attention soon faded as the local and international focus turned to the diplomatic politics of financing. Public attention to other important issues including the design, alignment, fares, reclamation and property development was almost absent. Hong Kong simply hoped to reach an agreement as soon as possible. Ironically, under such circumstances, all of the MTRC's decisions about the Airport Railways except financing were little challenged despite its presumably limited role in the Sino-British diplomacy. After the opening, the daily number of Airport Railway passengers (23,000 in 2002) fell a lot lower than the 1997 estimation (36,000).41 If there had been more public scrutiny before construction, it might be possible that the scale and details of the Airport Railway plan could have been adjusted.

Lower Priority to Social Needs: The Tseung Kwan O Extension

The political priorities accorded to the Airport Railways caused delays to a commuter railway in Tseung Kwan O (TKO), a New Town in the eastern New Territories. Formerly known as Junk Bay, Tseung Kwan O was the last of the government's seven New Towns planned in the 1970s (Chapter 3).42 The colonial government originally planned to develop this remote location into a new town for over 150,000 people by the mid-1990s and to provide the new community with an MTR rail link.43 In the mid-1980s, the MTRC expressed reservations of opening the rail link by the mid-1990s because it calculated that the new town population should reach at least 320,000 before a new railway could be financially viable. It was also worried about intense competition from buses because a road tunnel link to urban Kowloon was planned.44 The government was more enthusiastic than the MTRC. According to the Second Comprehensive Transport Study 1988, an MTR link would be ‘worthwhile from the community point of view’ from 1996 onwards when the Tseung Kwan O population reached 164,000.45 In May 1989, Secretary for Transport Michael Leung said the TKO link was a priority project under consideration.46

The June Fourth tragedy in Beijing indirectly changed the railway planning in Hong Kong. The new airport plans announced in October 1989 took over the top priority of all transport infrastructure projects, including the Tseung Kwan O railway. The White Paper on Transport in 1990 recognised that all other railways would be accorded a lower priority to the Airport (p.168) Railways which would ‘impose strong pressure on the economy and the resources of the construction industry’.47 The government deferred the Tseung Kwan O Extension to further study. However, Tseung Kwan O's population continued to grow fast partly because the financially autonomous Housing Authority did not stop public housing programmes.48 Social need for such a commuter rail link grew. After the 1991 LegCo elections, legislators brought the district demands to government and public attention.49 By 1993, the growing population caused so much congestion at the eastern harbour MTR crossing that the MTRC planned for improvement works in the interchange station to relieve over-crowding.50

In December 1994, the government's first Railway Development Strategy concluded that the Tseung Kwan O Extension was a priority railway for opening in 2001. But the MTRC reserved resources on the Airport Railways project and took another fifteen months to complete a preliminary planning proposal for the Tseung Kwan O Extension in April 1996.51 The Chinese government did not object because the MTRC proposed to finance the Tseung Kwan O railway entirely by internal resources, commercial loans and property development income and did not request for government funding.52 In December 1996, the government confirmed to implement the Tseung Kwan O Extension but the MTRC decided to start construction only after completing the Airport Railways.53 The MTRC eventually finalised the Tseung Kwan O Extension project agreement with the government in November 1998, with target opening in December 2002.54 The MTRC was able to complete the construction four months ahead of schedule at the final cost of HKD 18 billion, 40 percent below the original budget of 30.5 billion mainly due to deflation.55

By the time the 12.5-kilometre-long commuter rail link was opened in August 2002, the Tseung Kwan O population had already grown to over 340,00056 and reached the MTRC's preferred size for a financially viable railway. The Tseung Kwan O Extension, aligned along major public and private housing estates, helped rejuvenate the MTR passenger demand.57 This extension was a classic outcome of the Hong Kong railway development model that puts financial viability before social needs such that railways are built to catch up with the demand. In this particular case, Tseung Kwan O residents might have been able to enjoy the commuter railway a few years earlier if social priorities had not been further overtaken by political priorities for the Airport Railways.

Boosting Tourism through the Disneyland Railway

After July 1997, some new transport systems were built to serve the HKSAR government's economic development policies (see also Chapter 2). A leading example is the Disneyland Resort Link, formerly known as the Penny Bay Rail Link, which was the first new project the government awarded to the MTRC (p.169) after it became a listed company. The Disneyland link is different from other MTRC railways in the sense that it aims not to meet public transportation needs but to facilitate the government's policy of promoting tourism. The 3.4 kilometre rail-link (of just 3.5 minutes travelling time) connects the MTR Tung Chung Line to the Disneyland theme park,58 the government's flagship tourism project estimated to generate total economic benefits of HKD 148 billion over forty years.59 In the joint venture agreement with US Disney, the HKSAR government undertook to provide a rail link to coincide with the opening of Hong Kong Disneyland in 2005. In July 2000, the government and the MTRC agreed on a preliminary railway scheme and started negotiations.60

The MTRC regarded the Disneyland railway project as a business opportunity. From the perspective of maximising expected financial return, the Company's key concern was whether a mass transit railway is economically justified for the tourist rail link, of which the planned maximum passenger capacity per hour would only be 10,000 passengers,61 much lower than the MTR's peak hour capacity of 85,000. 62 The MTRC estimated that the Disneyland railway could not reach its minimum acceptable internal rate of return of 11.25 percent and would incur a loss HKD 798 million (at present value) during the franchise period.63 The public-listed MTRC asked the government for financial support to protect minority shareholders' interests.

Government officials found the two-year negotiations with the MTRC difficult.64 They were cornered by the contractual obligations to the Disneyland and the MTRC's firm position. A senior transport official admitted in LegCo that the MTRC would not undertake the project ‘unless it could achieve a commercial return’.65 The MTRC's original request was new property development rights.66 Under a new policy to restrain property supply, however, the government rejected the demand and explained officially that there were ‘engineering, planning and other land use restrictions’.67 The option of equity injection was also rejected because it would require the legislature's approval that the HKSAR government was trying to avoid. Given the circumstances, the government yielded to the option of waiving dividends, which could be implemented by executive agreements without LegCo's endorsement. In July 2002, the government agreed to waive the dividend of HKD 798 million and the MTRC would reduce the construction cost from HKD 2.6 to 2 billion.68 A formal deal had to be signed within days. Otherwise, the Disneyland railway might not be completed in 2005.69

This decision came at a politically sensitive time when Tung Chee-hwa had just introduced the Principal Officials Accountability System (Chapter 2). The dividend waiver proposal turned out to be a small saga. All factions in LegCo expressed serious concerns. Legislators who were barristers complained that the government deliberately ‘bypassed’ the chamber to implement a de facto equity injection through ‘unreasonable legal means’.70 Pro-government legislators strongly complained that the government had given them little time (p.170) and information about the situation. The LegCo Railway Subcommittee passed non-binding motions to delay the project agreement signing.71 The media accused the government of giving benefits to a listed company.72 The government postponed the contract signing by two weeks.73 Meanwhile, officials were severely grilled in four LegCo Railway Subcommittee meetings. Officials did not find the public-listed MTRC a supportive partner as it refused to send representatives to the LegCo meetings or provide commercial data such as the cost of capital on the grounds of commercial sensitivity.74 On 24 July 2002, the government signed the agreement with the MTRC in the absence of LegCo's blessing.75 In this political controversy, public criticism was directed towards the ‘ministers’ and senior civil servants, but not so much at the MTRC. It seemed that most people accepted that the listed company would want to maximise its gain and expected the government to handle the matter better to safeguard public interest.

In September 2005, the Disneyland Resort Link was opened together with Hong Kong Disneyland. The MTR trains with Disney features are well received. But the theme park faced serious public relations problems and the turnout was lower than estimated.

KCRC: From Railway Operator to Builder

In contrast to the MTRC, the KCRC was not originally established as a railway builder but as a railway operator. It, therefore, had relatively limited railway project management experience in its first fifteen years, except for a comparatively small-scale Light Rail project in the late 1980s. In that case, the KCRC mainly imported an overseas system under an indirect management approach, in contrast to the MTRC's direct project management. KCRC staff monitored the external consultants who managed the project contractors; and the costs of monitoring projects could be quite high. After the West Rail contract controversy in 1996, the KCRC had to change that project management strategy. KCRC Chairman K Y Yeung beefed up the internal project management team, modified the project management strategy into a mixture of direct and indirect approaches, and appointed the former secretary for works James Blake as the first senior capital project director in 1998. Since then, the KCRC entered into an era of railway network expansion and faced more challenges in new projects. The following section recounts the KCRC's struggles in political and managerial problems of implementing its major railway projects.

The Unpopular Light Rail

The Light Rail is an above-the-ground rapid train system opened in 1989 in the Yuen Long and Tuen Mun districts of the northwest New Territories. The (p.171) government tasked the KCRC to deliver and operate the Light Rail system as part of the government's New Town policy. The project, however, was destined to be unpopular and financially unattractive because of the flawed policy design. The government's original concept in the 1970s was to develop Tuen Mun into a self-sufficient New Town where residents would live and work without much need to travel to the urban area. Hence, the government planned for an environmentally friendly Light Rail system for residents to travel within Tuen Mun and nearby districts (Yuen Long and later Tin Shui Wai New Town).76 The government's initial plan in the early 1980s was a private-sectorowned Light Rail. But private consortia cast doubt over the self-sufficiency concept and feared the political uncertainty as the 1997 question surfaced. In 1983, the most promising candidate, Hong Kong and Kowloon Wharf, pulled out from the negotiations over disagreement with the government on land premiums for the Light Rail-associated property development.77

The government decided that the Light Rail must be built to boost economic confidence.78 The MTRC was heavily indebted at that time. Therefore, Secretary for Transport Alan Scott invited the only alternative, the newly established KCRC, to consider the Light Rail proposal on ‘purely commercial’ grounds.79 Secretary Scott said the government would not exert political pressure on the KCRC but there would be no Light Rail if the Corporation vetoed the proposal.80 Under the circumstances, the KCRC focused on making Light Rail commercially viable by negotiating with the government for loan guarantees, property development rights, and a monopoly for feeder buses.81 In July 1984, the KCRC agreed to build the Light Rail at a budget of HKD 1.5 billion by importing a mainly European system.82

However, the Light Rail was not what the passengers had wanted. Tuen Mun residents wanted a longer commuter rail to Tsuen Wan to which the MTR urban lines could be connected.83 The community was opposed to the Light Rail plan. Tuen Mun and Yuen Long District Boards criticised it. Residents wrote to the press and more than 10,000 people petitioned to LegCo and ExCo.84 They were also worried that the KCRC monopoly would lead to high Light Rail fares and that the high-speed Light Rail system on the crowded Tuen Mun and Yuen Long towns would pose road safety risks. The government rejected all the opposing claims. It explained that the Light Rail was a suitable system for developing self-sufficient and environmental new towns and a longer commuter railway was not financially justified.85

Unfortunately, the residents’ worries came true. During the opening stage in 1988–89, the Light Rail was plagued with safety problems and fatal accidents. The Light Rail director failed to manage district relations well. The passenger numbers were less than one-third of the first-year estimation.86 The moneylosing Light Rail was criticised as being a ‘white elephant’.87 All the Light Rail problems set the scene for the golden handshake controversy in 1988–89 discussed in Chapter 6. Subsequently, the concept of self-sufficient new towns (p.172) proved not to work because most residents could only find good jobs and schools in the urban areas. The demand for commuter transport continued to grow. By early 1990s, the government found it politically impossible not to relax the KCRC monopoly and allowed more bus and mini-bus transport to operate within the Light Rail zone, leading to further erosion of Light Rail's competitiveness. Nineteen years after the opening, Light Rail remained a financial and operational challenge to the KCRC, and now to the MTRC (for examples of Light Rail incidents in recent years, see Chapter 10). The radical suggestion that the Light Rail might as well be removed is still sometimes heard.

West Rail Controversies

From the Light Rail case, the demand from the northwest New Territories residents for a commuter railway clearly had existed since the mid-1980s. The failed experiment of a self-sufficient Tuen Mun meant that residents suffered from inadequate transport links. The Tuen Mun Highway was their only road to Kowloon. In 1989, the second Comprehensive Transport Study finally recommended a heavy rail link to be built between Tsuen Wan and Yuen Long, plus an optional freight line.88 The government commissioned the Railway Development Study (RDS–1) to evaluate a western rail and other new railway proposals in 1991.89 The western rail presented a window of business expansion to the KCRC. The Corporation proposed to expand the commuter link into a large-scale cross-border passenger-cum-freight railway with terminals at China, Tuen Mun and Kwai Chung container port.90

The RDS–1 recommendations on the ‘Western Corridor’ released in July 1993 were strikingly similar to the KCRC proposals though the Corporation had not yet been officially engaged in the government planning. The government took another 18 months to consider the RDS–1. The LegCo became impatient with the slow progress and passed a non-binding motion in March 1994 urging the government to speed up the railway planning.91 Legislator and KCRC Board member Moses Cheng expressed dismay that the Corporation had not been involved in the Western Corridor planning.92 In December 1994, the government finally published the first Railway Development Strategy in which ‘West Rail’ was accorded as a priority project and formally invited the KCRC to conduct a feasibility study. The government plan was to construct the triple-purpose West Rail (a local commuter, freight and cross-border railway) at a budget of HKD 23 billion (1992 prices) by 2001.93 The government did not foresee the need to inject equity at the time.

Tuen Mun residents and their legislative representatives were disappointed at the government plan of not extending the West Rail terminal to Tuen Mun town centre. The KCRC also preferred the town centre extension so as to (p.173) maximise business. The government refused on the grounds that it would be an engineering challenge and cost billions more.94 In September 1995, an emergency closure of the Tuen Mun Highway caused traffic chaos. The government changed its mind.95 In November 1995, the government supported in principle the KCRC's full proposal for West Rail including an extension to the Tuen Mun centre. But the KCRC tripled the budget to HKD 90 billion and refused to release the financial details.96

Dealing with China's opposition

The costly West Rail project could potentially create another Sino-British political deadlock as in the Airport Railways case. In the West Rail situation, however, the Hong Kong government did not push hard and played it slowly. The KCRC was drawn into the diplomatic dispute even before it received the formal invitation to construct West Rail. In May 1994, China's Hong Kong and Macau Office Chief Lu Ping accused KCRC Executive Chairman Kevin Hyde of snubbing the Beijing-appointed Preliminary Working Committee by not attending a PWC economic sub-group meeting on West Rail.97 Hyde explained that his absence was purely for personal reasons and denied any connection with the Hong Kong government.98

In early 1996, with the government's tacit support, the KCRC started awarding design contracts before ExCo's formal approval of West Rail or the Joint Liaison Group's consent.99 This triggered severe criticism from the Chinese officials, pro-Beijing newspapers and Preliminary Working Committee members.100 Quite understandably, they complained about the exorbitant costs and inadequate transparency. Some cast doubt on the KCRC's managerial capability of managing such a large project.101 The diplomatic controversy escalated when the KCRC asked the government to inject equity of HKD 44 billion for West Rail. The war of words reached a climax in May 1996. China's Joint Liaison Group representative Chen Zuoer warned that West Rail construction should only start after Beijing had agreed; otherwise the future HKSAR government might not honour the awarded contracts.102 Some pro-Beijing personalities proposed to scale down West Rail by cutting out the freight line or shortening the passenger line.103 In June 1996, the government agreed to provide the Joint Liaison Group and LegCo with the KCRC's full proposals except for land resumption information. Secretary for Transport Gordon Siu, who had worked on the airport negotiations,104 undertook to discuss West Rail with the Hong Kong and Macau Office officials and Beijing-appointed Preparatory Committee, the official body recognised by China and the UK for preparing the transition.105

Unlike in the airport talks, the Hong Kong government practically handed over the West Railway project to the future HKSAR government. Governor Patten explained to LegCo that most of the West Rail decisions would be ‘taken (p.174) on the brink of the transition’ and the project would be ‘wholly within the autonomy of the SAR’.106 In early 1996, the director of lands said West Rail would be delayed anyway because land resumption would take five years.107 In a LegCo motion debate on West Rail in July 1996, some legislators criticised the government for not being truly committed to implementing West Rail as quickly as possible.108 In December 1996, the Hong Kong government made further conciliatory moves to address Beijing's concerns. The government announced that the KCRC would go ahead with the West Rail local passenger line only, which had not much been questioned by Beijing. It would defer the cross-border and freight lines until discussion with China.109 The total budget was trimmed down and the completion was postponed to 2003. In the same month, the government appointed K Y Yeung, who enjoyed good relationships with the Chinese authorities, as the KCRC executive chairman. The Corporation awarded a contract to a consultancy firm connected to a pro-Beijing critic of West Rail.110 By taking all these measures, the colonial administration avoided another political deadlock with Beijing in the final months of the transition.

There were also practical reasons for not proceeding with the crossborder and freight lines. The planning of a cross-border line, though important for meeting growing demand, would not be possible without China's cooperation. Meanwhile, the KCRC admitted making mistakes in its freight volume forecast.111

The Single-tender controversy

The West Rail project was not only delayed by China's concerns but also the KCRC's mismanagement of consultancy contracts. Legislators of different political factions were all alarmed at the KCRC's huge cost estimate, frustrated at its resistance to disclose financial details, and concerned about reports on expensive consultancy contracts. Therefore, the LegCo established in June 1996 a sub-committee under the Transport Panel to monitor the West Rail project. That was the first time LegCo had designated a sub-committee to oversee railway projects (there was not even one for the Airport Railways). Since then, setting up the railway subcommittee has become a standing practice.

Within one year, the LegCo West Rail Sub-committee met 14 times and invited transport officials and KCRC executives to discuss all aspects of the project. The KCRC management was put under the spotlight through disclosure of a large amount of information. In August 1996, the LegCo West Rail Sub-committee found out that the KCRC had awarded consultancy contracts without tender (‘single tenders’).112 The revelation immediately drew strong criticism from legislators, the media and the director of audit. It became even more embarrassing when Hyde apologised to the sub-committee that (p.175) there were many more single tender contracts than he had previously reported.113 The KCRC heavily relied on a few consultants such as Bechtel. Legislators pressed for a thorough investigation by the director of audit or the Independent Commission Against Corruption. The government refused. Instead, the transport policy bureau launched its own investigation. In the same month, Hyde announced that he would leave the KCRC on expiry of his contract.

In September 1996, that policy bureau reported that there were 51 single tender consultancy contracts of over HKD 110 million. The 250-strong KCRC West Rail division was virtually formed by seconded consultants.114 Transport officials considered that the KCRC's tendering procedures were generally in line with the government standard but the KCRC management decided back in 1989 not to notify the Board of exempting consultancy contracts from open tenders.115 Hyde followed Quick's policy. At the government's request for correction, the KCRC immediately reduced the seconded consultant staff by half.116 Hyde's successor Yeung re-expanded the West Rail project team by employing many consultants as KCRC staff.117

The Siemens fiasco and opening hiccups

The preparation for implementing the WR project after December 1996 was fairly smooth. Before the transfer of sovereignty, the KCRC tendered out technical contracts and the legislature passed the Railways Bill to facilitate the Corporation in land resumption. After the handover, the HKSAR Provisional LegCo endorsed in February 1998 the government plan to inject HKD 29 billion of equity into the KCRC.118 In March 1998, necessary amendments were made to the KCRC Ordinance. With ExCo's final endorsement in 1999, the KCRC began construction of West Rail, which was a challenging project of large-scale proportions and complicated civil engineering. In 2002, the Siemens fiasco was exposed as the biggest scandal of KCRC project management as detailed in Chapter 6.

When West Rail was about to open, there were more hiccups. In July 2002, the KCRC told the public that West Rail would commence operations ahead of schedule in September 2003.119 Subsequently, the Corporation postponed the opening date three times because of interface problems of the signalling systems.120 It was doubtful if that was the only reason.121 It was easy to observe that the construction of many West Rail stations was far from completion as late as July 2003. The confusion about West Rail's commencement date attracted another round of public and media criticism. KCRC Chairman Michael Tien made a public apology. Even more intriguing were the conflicting public messages from Tien and senior executives. This was a sign of increasing tension between the chairman and senior managers.

(p.176) In spite of its eventful development, the KCRC delivered the enormous and complex West Rail project just before the deadline on 20 December 2003. The actual cost of HKD 46.6 billion was more than 25 percent below the original budget of HKD 64 billion mainly due to deflation and recession in the construction industry.

Another ‘white elephant’?

Residents of the northwest New Territories had waited so long for West Rail, but ironically the actual passenger demand fell short of the KCRC's estimation. By May 2004, the daily number of West Rail passengers was about 100,000, only one-third of the original estimate of 300,000 users. The new railway lost heavily.122 People questioned if West Rail was a much larger ‘white elephant’ than Light Rail.123

The KCRC had estimated that the West Rail project would yield an internal rate of return of 8.9 percent.124 The lower than budgeted actual construction cost should also be favourable to financial performance. Then, why did the financial numbers turn out badly? First, the KCRC could not charge as high as it originally assumed (HKD 21 per ride) due to economic recession. West Rail charged HKD 16 (with a further 20 percent discount) at the time of its opening125 (more details in Chapter 9). Second, the demand forecast was problematic. West Rail was built for a much larger passenger demand and thus the stations are huge. Large-scale property developments along the West Rail were originally planned to generate new passenger demand but later was delayed by government policy (Chapter 8). Third, the delay in developing West Rail was in itself a cause of the problem. In the absence of a railway for decades, bus and other road transport in Tuen Mun and Yuen Long had developed substantially. Passengers became accustomed to convenient road transport and strongly resisted reduction of bus services (more in Chapter 10). Michael Tien blamed the low demand for West Rail on bus competition and urged the government to ‘do something about this’.126

Politics of Competition over Shatin-Central Link

After completing the West Rail project, the KCRC continued to expand its railway network under the government's railway plans. The Corporation completed two smaller-scale extensions to East Rail: the Tsim Sha Tsui Extension in October 2004 and the Ma On Shan Extension in December 2004. The second cross-border Lok Ma Chau Extension opened in mid-2007. (The environmental controversy about the Lok Ma Chau extension will be explained in Chapter 8.) At that time, the MTRC had a few extension plans under negotiations with the government but none were confirmed, except for a good (p.177) chance of the relatively short West Island Line. In the meantime, the next biggest railway project for Hong Kong would be the Shatin-Central Link. There has been much community demand, as reflected in a LegCo motion debate in 2000127 for a new cross-harbour rail to relieve the pressure on the existing MTR cross-harbour service. In the past, the government invited either the MTRC or the KCRC to implement railway projects. In the case of the Shatin-Central Link, however, the government for the first time (and the last time) asked the two government-owned public railways to compete for the tender. This unprecedented decision led to an exciting and convoluted political process that subsequently became a factor in the government's major policy turn to merge the two railway corporations.

Original ideas from MTRC and KCRC

Both railway corporations had aspired to build a cross-harbour railway from Shatin to Hong Kong for many years. The first idea for building a railway link from the eastern New Territories (Shatin) to the city area (east Kowloon) went back to the original Mass Transit Study of 1967.128 In the early 1980s, the MTRC explored options of expanding its cross-harbour network and suggested an east Kowloon MTR line running from Ma On Shan New Town (near Shatin) to east Kowloon (Diamond Hill MTR station) and then across the harbour to Hong Kong Island (Central).129 In the late 1980s, the KCRC also considered a similar possibility of building a cross-harbour KCR link to central district on Hong Kong Island and hoped the big project would boost the Corporation's case for privatisation.130 Owing to the overriding priority of the new airport plan, the government decided in the early 1990s to put on hold all new railway options for east Kowloon and a cross-harbour service for further study.131

Decision for competitive tender

In 1998 when the airport projects were almost completed, the HKSAR government revisited the case for a fourth rail harbour crossing in the third Comprehensive Transport Study and then commissioned the second Railway Development Study (RDS–2). In May 2000, RDS–2 proposed a Shatin-Central Link from Tai Wai (eastern New Territories) to the Central West (Hong Kong Island). The consultants evaluated six railway alignment options in three categories as follows.

  • Regional networks 1 and 2: East Rail extension to either Exhibition/Admiralty or Victoria Park (the KCRC as operator)

  • Urban networks 1 and 2: a new East Kowloon Line to either Exhibition/Admiralty or Victoria Park (the KCRC as operator)

  • (p.178) Urban networks 3 and 4: a new East Kowloon Line to either Exhibition/Admiralty or Victoria Park (the MTRC as operator)

These options were developed from the original proposals of the KCRC and the MTRC respectively. The RDS–2 suggested that the two regional network options would be natural extensions of the KCRC's East Rail for ‘promoting socio-economic integration of Hong Kong and Mainland’ by providing rail links between the key centres in Hong Kong and the Pearl River Delta.132 However, the costs of the regional networks would be higher than all the urban network options. In 2000, the government concluded in the Railway Development Strategy133 that none of the six options stood out as the best and a ‘pragmatic’ approach should be for the two railway corporations to compete. In order to facilitate ‘competition’, the government deliberately put aside the regional network option and used the ‘urban network options’ as the basis of a ‘conforming proposal’ so that it would be neither a natural extension of the KCR nor the MTR. The two corporations could then develop the most costeffective schemes to fit into ‘their respective business objectives’.134

In January 2001, the government formally invited the KCRC and the MTRC to tender for the Shatin-Central Link. The tendering brief specified that bidders should prepare a ‘conforming proposal’ as the common basis for assessment by two government panels on financial and technical aspects, and they could also submit non-conforming proposals for reference. In the conforming proposal, the basic railway scheme must be from Kowloon east across the harbour to Exhibition/Admiralty on Hong Kong Island. Transport bureau officials stressed that the government's different levels of shareholding in the KCRC (fully government-owned) and the MTRC (75 percent) would not affect the evaluation.135 The stated criteria for evaluation were: less disturbance to adjacent railways, environment, traffic and existing facilities; more convenient interchanges; better station layout and accessibility; better interfaces; less land resumption; conformity with existing and planned land use; early completion; lower fare level; lower required rate of return; and less government funding support.136 The tender was closed on 20 July 2001. The target date of the award announcement was late 2001.

Competition between ‘brothers’

The Shatin-Central Link project was strategically important to the future business development of both the MTRC and the KCRC. For the first time, the two government-owned railway ‘brothers’ competed against each other in a real business sense.

This project was particularly critical for the MTRC's future profitability as acknowledged in the IPO prospectus in 2000. The growth of MTR passenger (p.179) numbers and revenue slowed down due to fierce competition with buses and economic recession. The current railway business was not expected to improve much as economic development already reached a mature stage. Unlike the KCRC, the MTRC did not have a major new railway project on Hong Kong at that time. The Shatin-Central Link would have been an important booster of MTR railway income. Furthermore, losing the Shatin-Central Link would end the MTRC's monopoly of all of its most profitable cross-harbour railways, and would impose a potential threat on its business.

At the time of the tender, winning the Shatin-Central Link would be more a good opportunity for the KCRC to expand business than a threat if it had lost. The new link would boost the passenger numbers on East Rail as a whole and encourage the east New Territories passengers to switch to its newly opened Ma On Shan rail extension from buses. It would open the cross-border business by linking Hong Kong business districts to the Pearl River Delta cities. The KCRC could also re-deploy surplus West Rail project staff to the Shatin-Central Link project. Strategically, the KCRC believed that a cross-harbour service would be lucrative business and could strengthen its case for public listing.

Before the tender closed, the KCRC submitted two proposals while the MTRC submitted nine proposals.137 The MTRC was widely believed to stand a high chance of winning the tender by the media, the investment community and the project management industry for a number of reasons.138 The MTRC enjoyed a better reputation as a railway project manager. According to the industry, the alternative proposals submitted by the MTRC were of superior professional quality than the KCRC's two submissions.139 The MTRC was more popular with the public. The basic scheme of the ‘urban network option’ chosen by the government was fairly close to the MTRC's original proposal. More importantly, the MTRC's project cost estimation was lower than that of the KCRC.

On the other side, the KCRC was generally considered less experienced in managing big projects, operating urban railways and obtaining international market financing. In addition, the KCRC faced serious corporate image problems when the public memory was still fresh about its various controversies in 2000 such as the Long Valley saga (Chapter 8). However, the KCRC enjoyed some advantages over the MTRC. The Shatin-Central Link could start from KCRC Tai Wai Station. It would be less costly to expand the existing KCRC Hunghom interchange than for the MTRC to build a new interchange. Awarding the Shatin-Central Link to the KCRC would break the MTRC's monopoly in cross-harbour railway service and provide more passenger choices that the public had argued for. Moreover, KCRC management was known to have closer working relationship with the government.

The government instructed the KCRC and the MTRC to keep silent before the award outcome was announced. However, after October 2001 there was (p.180) an apparently well-planned disclosure from unnamed official sources to selected Chinese newspapers that the KCRC would likely win the tender. The non-attributed sources said the KCRC did not ask for as much property development rights as the MTRC had and would charge lower fares.140 Government officials probably considered it necessary to manage public expectations about the tender outcome in view of the KCRC's poor public image and higher overall project costs than the MTRC. After December 2001, the press reported several times that the project would soon be awarded to the KCRC.141 The official announcement, however, was preempted by the news of the Siemens fiasco in January 2002. The government waited until after the Siemens investigation report was released to announce the outcome of the tender.

On 25 June 2002, the government announced that the Shatin-Central Link project scheduled for completion before 2011 would go to the KCRC. The government explained that the KCRC and the MTRC were equally good in the technical aspects but the KCRC proposed lower fares and lower government funding support even though the total project cost was higher than in the MTRC proposal.142 This was exactly what the ‘unnamed sources’ had said in the press.

‘Regrettable’ loss to MTRC

The loss of the Shatin-Central Link was a negative blow to the MTRC management, and according to Chairman Jack So his ‘greatest regret’. It was considered a blow to staff morale, minority shareholders interests, and the prospect of further divestment of government shareholding. Despite the government's expectation management, the stock market still reacted strongly to the news. The MTRC's share price dropped significantly on the announcement and investment analysts downgraded the company's target price.143 The MTRC finance director asked in public that the government give a good explanation to minority shareholders for the decision.144 The Company formally expressed frustration at the government's decision.145

Costs of winning to KCRC

The winner KCRC also bore costs of the victory as it found cooperation with the MTRC at the new railway interchanges becoming increasingly difficult. The KCRC Chairman Tien complained that the MTRC had rejected to offer fare discounts to the West Rail passengers at the MTR–West Rail interchange station and delayed negotiations on planning the Shatin-Central Link interchange (p.181) with the MTR network.146 The two railways resumed talks on the interchange fare after Jack So left the MTRC in July 2003147 and offered fare discounts in early 2004 under public and government pressure. The MTRC reportedly refused to provide the KCRC with the information about the MTRC's Shatin-Central Link proposals.148 In August 2003, the MTRC submitted proposals to the government to extend the MTR to Whampoa to compete with the KCRC's Shatin-Central Link.149 The biggest ‘cost’ to the KCRC victory, nonetheless, was the possible linkage of the Shatin-Central Link tender to the government's subsequent policy decision of merging the railways — which would mean in effect a takeover of the KCRC by the MTRC.

Costs and benefits to the public

How much the public benefited from the Shatin-Central Link tender is open to question. The ‘competition’ created by the bidding between the two public railways was supposed to bring more passenger choices and break the MTR monopoly of the cross-harbour railway service. However, on the same day that the Shatin-Central Link was awarded, the government also announced it would study the feasibility of merging the KCRC and the MTRC. Why should there be a ‘competitive’ bidding if the two railway operators would eventually become one?

During and after the awarding of the tender for the Shatin-Central Link, the tripartite relationship between the government, the KCRC and the MTRC became tense, according to interviews with officials. The government's concerns became obvious after the award. Secretary for the Environment, Transport and Works Sarah Liao openly pleaded that the ‘two brothers of the same mother’ should cooperate better.150 There was yet tension in the tripartite relationship occurring after the Shatin-Central Link tender and before the government's instruction to the two railways to formally negotiate the merger. In July 2003, Secretary Liao revealed that the Shatin-Central Link scheme might be revised so that the cross-harbour link would be an East Rail extension. The opening of the Shatin-Central Link might therefore be delayed.151 This ‘regional network option’ was deliberately rejected by the government in 2000 to facilitate the tender. If this option had been chosen, there would have been no need for the tender and the KCRC could have started constructing the link much earlier. In 2004, with apparent government support the KCRC planned to lengthen the Shatin-Central Link section running in parallel to the MTR, which would have posed stronger competition to the MTRC. The MTRC queried such revisions to the railway alignment.152 The LegCo transport panel expressed dissatisfaction at yet another possible delay to this long-awaited link.

(p.182) Challenges and Uncertainties for Future Railway Projects

Before the merger reform, the future challenges of new railway projects to the government-owned corporation(s) could have been quite different in the two scenarios of (a) the MTRC and the KCRC remaining separate or (b) becoming one new organisation.

Had there been no merger the two corporations would have faced contrasting business situations. The MTRC would have had much fewer railway business growth opportunities in Hong Kong than it hoped. It lost the Shatin-Central Link. The government decided in 2003 to postpone another MTR project, the Hong Kong North Island Line, originally earmarked in the Railway Development Strategy 2000 to further review after 2016.153 The case for another new project, the Southwest Island Line, was under difficult negotiations with the government (more in Chapter 8). The limited local opportunities pushed the MTRC to export its railway business and property-financing model internationally, particularly to China using build-operate-transfer arrangements (Chapter 5).154 Globalisation of the MTRC business, however, raises new questions of public accountability. The MTRC Limited is a largely Hong Kong government–owned company enjoying special policy support. If the MTRC lost in overseas, would Hong Kong passengers bear the risks and costs? If the international business is good, would the Company's expertise, capital and management attention be drawn to the overseas market and local needs be left aside? After all, should the government directly and indirectly finance a public railway organisation doing business overseas?

A no-merger case for the KCRC would have meant further railway expansion in Hong Kong. The Corporation had already gained more project management experience from the West Rail and the East Rail extension projects. The public, however, was still alerted to occasional KCRC construction accidents, for example, two consecutive accidents in 2002 during the construction of the Ma On Shan extension. In August, a tunnel had to be closed for three hours and caused traffic congestion due to the delay in the KCRC works.155 In September, a 300-tonne beam from a large structure under construction collapsed, narrowly missing two workers who fortunately escaped.156 Those accidents did not help the KCRC gain public confidence in its project management ability. Apart from construction management, the Corporation would face the challenge of managing the community relations when it built the Kowloon South Link in a busy city centre. During the KCRC construction of the Tsim Sha Tsui extension, it already received hundreds of complaints (such as road collapses) and compensation claims for disruptions to business and the environment.157 A bigger business challenge to the KCRC would be the government's policy over new railway properties. The delay of the West Rail property development would have accentuated the KCRC's financial loss because of a much slower expansion of population along West Rail.

(p.183) After the KCRC railway operation was merged into the MTRC in December 2007, new uncertainties arose. The government was negotiating with the MTRC the future of the Shatin-Central Link. Shortly after the ‘merger’, the government confirmed the construction of the MTR South Island Line. The good news to the MTRC was the expansion of local business. The challenge to the management, however, would be whether it should redirect its focus back from international expansion to local railway expansion, or spread its management energy and attention more thinly to all the new business opportunities. The KCRC project management was being assimilated into the MTRC in some way. But how that would be done successfully will not be an easy challenge to the MTRC and the government, given the highly divergent corporate and project management cultures of the two brothers, as explained in this and previous chapters. (p.184)

Notes:

(1.) SCMP 12 October 1989, ‘The Governor's speech text’ (Policy Address on 11 October 1989).

(2.) Second Comprehensive Transport Study 1989, p. 17.

(3.) Wong, Fanny, ‘Port, airport projects may cause deficit’ SCMP 23 December 1989.

(4.) To, Eva, ‘Airport link to derail MTRC debt plan’ SCMP 3 March 1990.

(5.) Stoner, Tad, ‘MTR casts doubt on airport link’ SCMP 5 April 1990.

(6.) Stoner, Tad, ‘Development rights to induce the MTR link’ SCMP 20 May 1990.

(7.) Wong, Fanny, ‘Maude encouraged by China's “muted” response’ SCMP 26 July 1990.

(8.) Macklin, Simon, ‘Hurd could follow Maude to Beijing’ SCMP 29 June 1990; Wong, Fanny and Ho, Andy, ‘The Governor, Sir David Wilson, yesterday returned from his latest mission to Beijing’ SCMP 25 January 1991; Wong, Fanny and Yeung, Chris, ‘Hurd forced to leave without airport’ SCMP 10 April 1991.

(9.) Choy, Linda ‘Lengthy countdown to signing of historic agreement’ SCMP 5 November 1994.

(10.) Interview in 2003 with former senior officials close to the talks.

(11.) Godfrey, Paul and Chen, Kent, ‘Pro-Beijing link for airport body’ SCMP 2 November 1991.

(12.) MTRC Annual Report 1991–92; Wong, Fanny, ‘Deal on airport rail may reap $30b’ SCMP 23 January 1992; Godfrey, Paul, ‘MTRC committed to 1997 opening of airport link’ SCMP 27 April 1992.

(13.) MTRC Annual Report 1991; Thompson, Nick, ‘Government pledges up to $16 billion on railway’ SCMP 3 April 1992.

(14.) Wong, Fanny, ‘Debt fears on airport by Beijing’ SCMP 4 May 1992

(15.) Examples: Wong, Fanny and Cheung, Doreen, ‘China blames HK for airport delay’ SCMP 6 May 1992; SCMP 15 May 1992, Editorial: ‘War of words in the making over airport’; Cheung, Doreen, ‘Support for airport rail link by 1997’ SCMP 22 May 1992; Gittings, Danny, ‘Airport advisory team leader hit out at costs’ SCMP 24 May 1992; Cheung, Doreen, ‘“Problems” in equity idea’ SCMP 18 June 1992.

(16.) SCMP 21 July 1992, Editorial: ‘Ford takes the flak as war in the air resumes’; Wong, Fanny, ‘Airport row worsens as Beijing attacks top HK officials’ SCMP 22 July 1992.

(17.) SCMP 29 July 1992, ‘Airport delay puts MTRC fund-raising plan in limbo’.

(18.) Ibid.

(19.) Ho, Andy, ‘Patten is being firm, but not courteous’ SCMP 1 August 1992.

(20.) SCMP 2 September 1992, ‘New talks on airport tipped’; Wong, Fanny, ‘$40b boost for airport’ SCMP 18 September 1992.

(21.) Ren, Rain, ‘China looks set to reject new UK funding proposal’ HKS 17 September 1992.

(22.) Law, Connie and Wong, Fanny, ‘Governor blasts China for haggling on airport’ SCMP 23 September 1992; Wong, Fanny and Cheung, Doreen, ‘Governor agrees to delay trip to Beijing’ SCMP 24 September 1992.

(23.) Cheung, Doreen, ‘Deadlock intensifies on airport’ SCMP 16 October 1992; Cheung, Doreen and Ng, Louis, ‘China urged to resume airport talks’ SCMP 30 November 1992; Fan, Cheuk-Wan and Choy, Linda, ‘Chinese official calls for speed over airport finance’ SCMP 23 April 1993.

(p.285) (24.) Ocampo, Rosa, ‘MTRC scrapped big issue over new airport dispute’ SCMP 10 December 1992; SCMP 27 March 1993, ‘Problems put back station opening’; SCMP 26 May 1993, ‘Delay on contract revealed’.

(25.) MTRC Annual Report 1992; Cheung, Doreen, ‘Cash request by MTR for $ 33.5b airport railway’ SCMP 3 February 1993.

(26.) Wong, Fanny and Fan, Cheuk-Wan, ‘HK offers to shoulder bigger share of airport’ SCMP 22 May 1993; Law, Connie and Fan, Cheuk-Wan, ‘Finance for airport to stay secret’ SCMP 8 June 1993.

(27.) Wong, Fanny, ‘Airport projects ready for take-off with China backing’ SCMP 4 June 1993; SCMP 18 August 1993, ‘China set to approve plan’.

(28.) Chan, Quinton, ‘Chen says talks stalled on airport debt’ SCMP 6 June 1993; Wong, Fanny, Yeung, Chris and So, Lai-Fun, ‘China and HK move closer; China, HK edge closer on airport fund plans’ SCMP 27 January 1994; Chan, Quinton and Gittings, Danny, ‘Chinese fears over expat control of MTR threaten to derail’ SCMP 6November 1994.

(29.) Yeung, Chris, ‘China “warms” to new airport deal’ SCMP 4 February 1994; Choy, Linda, ‘Extra airport details given’ SCMP 2 July 1994; Fluendy, Simon, ‘Government concedes delays have boosted Chek Lap Kok bill’ SCMP 14 July 1994.

(30.) Loh, Mathew, ‘$1.72b contract sparks outcry’ SCMP 27 August 1993; Cheung, Doreen, ‘Rail project funding questioned; Government criticised for starting work without Mainland approval’ SCMP 14 September 1993; Wong, Fanny, ‘Sir Hamish accused of lacking sincerity in resolving deadlock; Lu attack on airport’ SCMP 22 January 1994.

(31.) Ng, Louis, ‘Funding approved for $ 449m project’ SCMP 25 September 1993; Choy, Linda and Ngai, Agatha, ‘Funds bid for airport rail project goes ahead’ SCMP 25 January 1994; Choy, Linda, ‘Hopes for deal on airport’ SCMP 26 May 1994.

(32.) SCMP 19 August 1993, ‘MTRC set to award contract’; Yeung, Chris, ‘MTR expansion move criticised’ SCMP 9 September 1994.

(33.) Ball, Steve, SCMP 21 April 1994.

(34.) Finance Bureau 1994, LegCo Finance Committee: ‘Capital Investment Fund, Head 967- Mass Transit Railway Corporation: New Subhead “Airport Railway”’, Minutes of the LegCo Finance Committee Meeting on 18 November 1994.

(35.) Wallis, Keith, SCMP 27 March 1995.

(36.) For example, there were disputes over imported labour of a local contractor. Szeto, Wanda and Tacey, Elisabeth, ‘Strike called over 90pc pay deduction, “imprisonment”’ SCMP 29 November 1995.

(37.) MTRC Annual Report 1996.

(38.) Delfino, Brendan, ‘MTR chiefs red-faced as delays hit staff’ SCMP 9 July 1998.

(39.) Delfino, Brendan, ‘Rail delay follow-up’ SCMP 25 July 1998.

(40.) Three investigations into the accountability of the airport fiasco were conducted by the HKSAR chief executive–appointed investigation commission, the LegCo and the Ombudsman. See, Lee 2000.

(41.) MTRC Annual Report 2003.

(42.) England, Vaudine, ‘New towns earmarked for population’ HKS 9 March 1982.

(43.) Li, Francis, ‘Road projects put new MTR lines in doubt’ SCMP 15 October 1986.

(44.) SCMP 22 April 1986, ‘Tunnel boosts MTR prospect of extension’.

(45.) Second Comprehensive Transport Study 1988, pp. 130–132, 196.

(p.286) (46.) SCMP 11 May 1989, ‘Vital road and rail plans for future’.

(47.) White Paper on Transport Policy in Hong Kong 1990, pp. 20–24.

(48.) Leung, Jimmy, ‘MTR link to Junk Bay under threat’ SCMP 20 November 1989.

(49.) Lau, Jeremy, ‘NT residents renew calls for railways’ SCMP 23 November 1992.

(50.) MTRC Annual Report 1993; Ball, Steve, ‘Tseung Kwan O MTR surge sparks controls’ SCMP 29 August 1994.

(51.) MTRC, LegCo Panel on Transport: Construction of the Tseung Kwan O Extension: An Update, 18 December 1998; Wallis, Keith, ‘$ 20b rail link details near’ SCMP 12 December 1995.

(52.) Minutes of LegCo Panel on Transport 1996 Meeting on 23 October 1996; Chan, Peter, ‘MTRC works to require $ 55b in next five years’ SCMP 24 December 1996.

(53.) Chan, Quinton, ‘Legislative Council. MTR: no chance of row on finances’ SCMP 24 October 1996

(54.) MTRC 18 December 1998.

(55.) HKET 15 January 2002Leading Railway Builder versus Controversial Project Manager.

(56.) Electoral Affairs Commission, Report on the Recommended Constituency Boundaries for the 2003 District Councils Election, Appendix VII.

(57.) MTRC Annual Report 2003–04.

(58.) MTRC, Penny Bay's Rail Link Brochure, April 2003.

(59.) ETWB, Legislative Council Brief: Mass Transit Railway Penny's Bay Rail Link Project Agreement, 9 July 2002.

(60.) HKET 22 July 2000 Leading Railway Builder versus Controversial Project Manager.

(61.) MTRC website (www.mtr.com.hk/eng/railway/railway_details.html#quality), February 2004.

(62.) Minutes of Meeting of LegCo Panel Transport Subcommittee on Matters Relating to the Implementation of Railways Development Projects on 9 July 2002.

(63.) Minutes of LegCo Panel Transport Subcommittee Meeting on 9 July 2002; ETWB, 9 July 2002.

(64.) Interview with officials in 2003.

(65.) Minutes of LegCo Panel on Transport Subcommittee on Matters Relating to the Implementation of Railway Development Projects on 16 July 2002.

(66.) IPO Prospectus 2000, p. 91.

(67.) Minutes of LegCo Panel Transport Subcommittee Meeting on 9 July 2002.

(68.) ETWB, Legislative Council Panel on Transport Subcommittee on Matters Relating to the Implementation of Railway Development Projects MTR Penny's Bay Rail Link — Project Agreement, 16 July 2002.

(69.) SCMP 8 July 2002, ‘MTRC expected to win Disneyland link’.

(70.) Minutes of LegCo Panel on Transport Subcommittee on Matters Relating to the Implementation of Railway Development Projects on 22 July 2002; SCMP 10 July 2002 ‘“Back-door” $800m aid for Disney rail attacked’; HKEJ 10 July 2002 Leading Railway Builder versus Controversial Project Manager.

(71.) Minutes of LegCo Panel on Transport Subcommittee on Matters Relating to the Implementation of Railway Development Projects on 16 July 2002 and 22 July 2002.

(72.) SCMP 10 July 2002; HKEJ 10 July 2002; AD 10 July 2002 Leading Railway Builder versus Controversial Project Manager.

(73.) HKEJ 23 July 2002 Leading Railway Builder versus Controversial Project Manager.

(74.) Interview with officials in 2002; HKEJ 16 July 2002Leading Railway Builder versus Controversial Project Manager.

(p.287) (75.) Sing Pao (SP) 24 July 2002 Leading Railway Builder versus Controversial Project Manager; AD 25 July 2002 Leading Railway Builder versus Controversial Project Manager.

(76.) SCMP 3 February 1983, ‘Light railway still under study’.

(77.) Jim, Timothy, ‘LRT operator must pay $280m premium’ SCMP 26 February 1983.

(78.) Chugani, Michael, ‘Tuen Mun Light Right will still be built’ SCMP 22 January 1983; Chen, Agnes, ‘LRT go-ahead will boost confidence’ SCMP 17 July 1984.

(79.) Jim, Timothy, ‘KCR offered LRT system’ SCMP 23 November 1983; SCMP 20 December 1983, ‘KCR to study Light Rail to NT’.

(80.) Ibid.

(81.) Ibid; Li, Francis ‘KCR team study rail plan’ SCMP 20 December 1983; SCMP 24 April 1984, ‘LRT loan pledge “vital”’.

(82.) KCRC Annual Report 1985–88.

(83.) SCMP 9 August 1984, ‘Tsun Wan link “not discarded”’.

(84.) Suen, Ophelia, ‘10,000 object to LRT plans’ SCMP 7 October 1984; SCMP 20 February 1984, ‘Residents' LRT fears’.

(85.) SCMP 1 September 1984, ‘LRT extension need by 1993, says Scott’.

(86.) The daily patronage in the first year was 80,000 passengers compared to the original projection of 250,000. Stoner, Tad, ‘LRT plans Tuen Mun extension’ SCMP 19 December 1989.

(87.) Nelson, Dean, ‘System a white elephant: claim’ SCMP 16 April 1989.

(88.) Second Comprehensive Transport Study 1989, pp. 133–137.

(89.) White Paper on Transport Policy 1990, p. 24.

(90.) Godfrey, Paul, ‘New railway plan ʻthreat to parkland’ SCMP 29 May 1992.

(91.) Hansard 9 March 1994.

(92.) Ibid.

(93.) Railway Development Strategy 1994.

(94.) Hansard 9 March 1994.

(95.) Lee, Naomi and Chin, Michelle, ‘U-turn on Tuen Mun link’ SCMP 15 September 1995.

(96.) Minutes of LegCo Panel on Transport on 11 January 1996; Wallis, Keith, ‘Railway plans to stay secret’ SCMP 20 January 1996.

(97.) Wang, Queenie and Chan, Dick, ‘Lu accuses Governor of PWC boycott’ SCMP May 8 1994.

(98.) Won, Louis, ‘Absence not political: Hyde’ SCMP 13 May 1994.

(99.) Wallis, Keith, ‘KCRC to issue 10 contracts’ SCMP 6 February 1996.

(100.) Examples: Hon, May Sin-Mi and Chan, Quinton, ‘KCRC accused over award of study contracts’ SCMP 5 June 1996; Yeung, Chris and Hon, May Sin-Mi, ‘Cost of railway “to paralyse SAR”; Pro-China newspapers accuse Government of aiming to drain funds from Treasury by “camouflaged methods”’ SCMP 15 June 1996.

(101.) For example, Beijing-appointed advisor and legislator Eric Li Ka-cheung, see Minutes of LegCo Transport Panel Subcommittee on 12 July 1996.

(102.) Yim, Sauw and Hon, May Sin-Mi, ‘Finance row looms with Beijing over $ 75b rail link’ SCMP 30 May 1996.

(103.) E.g. legislator and Beijing-appointed advisor Raymond Ho and Beijing-appointed advisor Francis Cheung King-fung. See Hon, May Sin-Mi, ‘Shorten link to cut costs, says China adviser; Three-point Western Corridor plan’ SCMP 21 June 1996; Chan, Quinton, ‘$40b West Rail cut offered’ SCMP 18 September 1996.

(p.288) (104.) Gordon Siu was the secretary for economic services before becoming the secretary for transport.

(105.) SCMP 15 June 1996.

(106.) Hansard 4 July 1996.

(107.) Minutes of LegCo Panel on Transport Subcommittee on West Corridor Railway Meeting on 21 June 1996.

(108.) Hansard 3 July 1996.

(109.) Hon, May Sin-Mi, and Delfino, Brendan, ‘Cargo line delay cuts $ 6 billion off link cost’ SCMP 12 December 1996.

(110.) Hon, May Sin-Mi, ‘West Rail contracts won by firm linked to vocal critic’ SCMP 1 November 1996.

(111.) LegCo 4 July 1996; Hon, May Sin-Mi and Yim, Sauw. ‘Rail link price cut hopes’ SCMP 5 July 1996.

(112.) Minutes of LegCo Panel on Transport Subcommittee on West Corridor Railway Meeting on 26 July 1996 and 2 August 1996.

(113.) Minutes of LegCo Panel on Transport Subcommittee on West Corridor Railway Meeting on 6 September 1996.

(114.) Minutes of LegCo Panel on Transport Subcommittee on West Corridor Railway Meeting on 24 September 1996.

(116.) Hon, May Sin-Mi, ‘Consultant sackings confirmed by KCRC’ SCMP 23 October 1996.

(117.) SCMP 20 December 1996, ‘West Rail set to take back newly fired consultants’.

(118.) Minutes of Provisional LegCo Finance Committee Meeting on 27 February 1998.

(119.) ST 6 July 2002 Leading Railway Builder versus Controversial Project Manager.

(120.) Postponements were made in July, September and then October 2003 respectively. Minutes of the LegCo Panel on Transport Railway Subcommittee Meeting on 18 July 2003; Wong, Kelvin, ‘West Rail gets to the bottom of faulty signal system’ SCMP 15 September 2003; AD 21 October 2003Leading Railway Builder versus Controversial Project Manager.

(121.) Sing Pao (SP) 28 September 2003Leading Railway Builder versus Controversial Project Manager.

(122.) MP 7 May 2004Leading Railway Builder versus Controversial Project Manager; ST 7 May 2004Leading Railway Builder versus Controversial Project Manager.

(123.) MP 7 May 2004, English Editorial: ‘West Rail may become white elephant’.

(124.) Finance Bureau 1998, Item for Finance Committee: Capital Investment Fund, New Head ʻKowloon-Canton Railway Corporation, New Subhead West Rail Phase I, 27 February 1998.

(125.) KCRC 2003, Lego paper issued on 1 August 2003.

(126.) HKET 6 May 2004Leading Railway Builder versus Controversial Project Manager.

(127.) Hansard 6 December 2000, pp. 1699–1739.

(128.) Mass Transit Study 1967, pp. 1, 67–69.

(129.) HKS 5 November 1983, ‘MTR thinking of expansion’; Choi, Frank, ‘Ambitious rail plan to link NT’ SCMP 9 November 1983.

(130.) Tad Stoner, ‘KCR unveils $6b plan for harbour link’ SCMP 26 July 1989; Yim, Jessie, ‘Railway proposes $6.5 island link’ HKS 2 August 1989.

(131.) Transport Branch April 1993, Railway Development Study: Public Consultation Document, Hong Kong Government; Railway Development Strategy 1994.

(132.) Executive Summary on Railway Development Study 2000, p. 14.

(p.289) (133.) Third Comprehensive Transport Study 1999: MVA/Maunsell 2000; Railway Development Strategy 2000.

(134.) Ibid, p. 29.

(135.) Transport Bureau, Legislative Council Panel on Transport Subcommittee on Matters Relating to the Implementation of Railway Development Projects Progress Report on the Shatin to Central Link, 30 November 2001.

(136.) LegCo Secretariat, LegCo Panel on Transport Subcommittee on Matters Relating to the Implementation of Railway Development Projects: Background Brief on Shatin to Central Link, 30 November 2001.

(137.) ST 21 July 2001Leading Railway Builder versus Controversial Project Manager; SP 20 July 2001Leading Railway Builder versus Controversial Project Manager.

(138.) Examples of media optimism of the MTRC's chance of winning can be found in WWP 17 January 2001Leading Railway Builder versus Controversial Project Manager; ST 21 July 2001Leading Railway Builder versus Controversial Project Manager.

(139.) Interview with engineers in 2002.

(140.) An analysis of the media reports shows that the disclosure from government sources was planned. The press reports from four different Chinese newspapers published between October and December 2001 quoted unnamed sources, contained detailed information, analysis and comparison of the two Corporations' proposals. See, HKET 18 October 2001,Leading Railway Builder versus Controversial Project Manager; AD 28 November 2001Leading Railway Builder versus Controversial Project Manager; Sun 12 December 2001Leading Railway Builder versus Controversial Project Manager.

(141.) HKEJ 8 January 2002 Leading Railway Builder versus Controversial Project Manager; WWP 31 January 2002Leading Railway Builder versus Controversial Project Manager.

(142.) Transport Bureau, Legislative Council Brief Operator of Shatin To Central Link, 25 June 2002.

(143.) Sun 26 June 2002 Leading Railway Builder versus Controversial Project Manager500Leading Railway Builder versus Controversial Project Manager35Leading Railway Builder versus Controversial Project Manager; SP 27 June 2002 Leading Railway Builder versus Controversial Project Manager.

(144.) Former MTRC finance director Clement Kwok made such comments to the press before he left the company. ST 19 January 2002Leading Railway Builder versus Controversial Project Manager.

(145.) MTRC Press release, ‘Shatin to Central Link railway project not awarded to the Company’, 25 June 2002.

(146.) Sun 5 December 2002 Leading Railway Builder versus Controversial Project Manager; HKEJ 8 May 2003Leading Railway Builder versus Controversial Project Manager.

(147.) Personal observation of LegCo Transport Panel Meeting on 1 August 2003.

(148.) HKEJ 13 August 2003 Leading Railway Builder versus Controversial Project Manager.

(149.) HKEJ 2 August 2003Leading Railway Builder versus Controversial Project Manager.

(150.) WWP August 2003Leading Railway Builder versus Controversial Project Manager.

(151.) ETWB, Legislative Council Panel on Transport Subcommittee on Matters Relating to Railways Shatin to Central Link, 29 September 2003; HKEJ 29 July 2003Leading Railway Builder versus Controversial Project Manager.

(152.) ST 17 February 2004Leading Railway Builder versus Controversial Project Manager; HKEJ 17 February 2004Leading Railway Builder versus Controversial Project Manager; WWP 31 July 2003 Leading Railway Builder versus Controversial Project Manager; HKET 31 July 2003 Leading Railway Builder versus Controversial Project Manager.

(p.290) (153.) ETWB, Legislative Council Brief Island Line Extensions, Route 7 and South Island Hong Kong Line, 24 February 2003.

(154.) Tsang, Denise, Headline: ‘MTRC in 6b yuan Shenzhen rail idea’ SCMP 16 January 2004.

(155.) MP 31 August 2002 Leading Railway Builder versus Controversial Project Manager.

(156.) MP 28 September 2002 Leading Railway Builder versus Controversial Project Manager

(157.) So, Antoine, ‘Street brawl brews on Nathan Road; Tsim Sha Tsui shops and hotels consider compensation demand over two-year roadworks project’ SCMP 20 September 2002; Lee, Klaudia and Chung-yan, Chow, ‘Shops win payouts for rail work chaos’ SCMP 7 November 2002.