3.8
3.9
The implications of these arguments on the evaluation results
can be seen by referring to Table 10 of Interim Report 8 (Volume 1) where the internal rate of return was shown for
the different systems based on the demand model fare level
assumptions. The MTR Island line had a real internal rate of return of 42 percent and would therefore need higher
fares to achieve the 6-7 percent discussed previously.
A further implication is that the Western Island Line (Option D) and the LRT system (if Option C were treated in the same manner since it requires significant investment in infra- structure as specified) would not require a fares increase
over that used in the demand model forecasts.
3.10
Owing to the pressures of time the cost/benefit analysis
was conducted using the fare levels specified in the
demand model rather than those required to achieve viability. In the light of the above arguments it would now appear that the results of the cost/benefit analysis can be
assumed to reflect a financially viable situation for these
two options:- provided that Government is satisfied about the
relative rates of return for private and public sector projects. To sum up, if the Government view is that, in practice, an
institution such as the MTRC would not be required to achieve a financial rate of return as high as 12%, then whilst this would reduce the need for charging higher fares (or assuming higher levels of future travel demand) the conclusions of
the cost benefit analysis would stand, in terms of their ranking of options. Thus Option B, with the MTR Island Line
would remain less attractive than Option A in cost benefit
terms.
3.11
Since the ICS is the first application of cost/benefit analysis to transport projects in Hong Kong there is not a generally
accepted value for the social discount rate. However the
sensitivity analysis on the discount rate did not change the relative ranking of the schemes except that Option D became more attractive than Option A at lower assumed discount
rates.
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