WEDNESDAY, JANUARY 7, 1981
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CATEGORY (B) IS DIFFICULT TO EXPLAIN IN SIMPLE TERMS. BRIEFLY, THE CHARGE FOR DEPRECIATION, THE PURPOSE OF WHICH IS TO WRITE OFF THE COST OF ASSETS (PRINCIPALLY BUSES) OVER THEIR ESTIMATED USEFUL LIFE, MUST INCREASE AS A RESULT OF THE PROPOSED EXPANSION PROGRAMME OF BOTH COMPANIES. ALTHOUGH, IDEALLY, EXPANSION COSTS SHOULD BE PAID FOR BY INTERNALLY GENERATED FUNDS AND BY FURTHER CONTRIBUTIONS FROM SHAREHOLDERS, IN PRACTICAL TERMS THIS IS NOT ALWAYS POSSIBLE AND COMPANIES MUST RESORT TO LOANS TO HELP PURCHASE SOME OF THEIR ASSETS, LOANS INVOLVE INTEREST CHARGES AND IT IS NORMAL COMMERCIAL PRACTICE THAT AT LEAST A PART OF SUCH INTEREST CHARGES SHOULD BE MET BY THE CONSUMER.
AS REGARDS PROFITABILITY, THAT IS CATEGORY (C) ABOVE, BOTH COMPANIES OPERATE UNDER SCHEMES OF CONTROL WHICH SET FIRM LIMITS ON THE LEVEL OF THEIR PROFITS. THE LEVEL OF PROFITABILITY IS CALCULATED ON THE BASIS OF THE AVERAGE NET FIXED ASSETS OF THE COMPANIES, USED SOLELY FOR THE PURPOSE OF BUS OPERATIONS. WHILE BUSES AND BUILDINGS (E.G. DEPOTS) ARE DEPRECIATED OVER TIME, THE VALUE OF LAND USED FOR BUS OPERATIONS IS FIXED AT 1959 PRICES OR THE ACTUAL VALUE OF THE LAND AT THE TIME OF THE PURCHASE, WHICHEVER IS THE LATER. IN OTHER WORDS, THE BUS COMPANIES ARE NOT ALLOWED, UNDER THE SCHEMES OF CONTROL, TO REVALUE THEIR LAND ASSETS SO AS TO ACHIEVE A HIGHER LEVEL OF PROFITABILITY, THE ASSET BASE CAN ONLY BE INCREASED THROUGH FURTHER CAPITAL INVESTMENT IN THE BUS OPERATION, FOR INSTANCE BY BUYING MORE NEW BUSES OR BY EXPANDING DEPOT FACILITIES. THIS PROVIDES THE COMPANIES' SHAREHOLDERS WITH AN INCENTIVE TO INVEST FURTHER CAPITAL IN THE EXPANSION OF THEIR BUS OPERATIONS ON THE EXPECTATION OF REASONABLE, BUT NOT EXCESSIVE, PROFITS ON THE IR INVESTMENT. IN THIS REGARD ONE ASPECT TO WHICH THE GOVERNMENT HAS TO PAY ATTENTION IS THE LEVEL OF DIVIDEND PAYMENT MADE TO SHAREHOLDERS IN RELATION TO UNDISTRIBUTED PROF ITS WHICH ARE PLOUGHED BACK INTO THE COMPANIES' BUS OPERATIONS.
IN CONSIDERING THE COMPONENTS IN THE ACCOUNTS AS CATEGORISED ABOVE, AND FOLLOWING THE SCHEME OF CONTROL, IT SHOULD BE EMPHASISED THAT THE MAJOR FACTORS PUSHING UP COSTS AND WHICH HAVE TO BE MET BY THE PASSENGERS FALL WITHIN HEADINGS (A) AND (B) ABOVE. IN CONTRAST, THE PROPORTION OF COSTS FALLING UNDER HEADING (C), THAT IS PROFITS, IS RELATIVELY SMALL.
FINALLY, IT SHOULD BE NOTED THAT THE INCREASES IN FARES SOUGHT BY KMB AND CMB ARE DIFFERENT. THE KMB FIGURES RANGE FROM 33 PER CENT TO 100 PER CENT DEPENDING ON THE ROUTE WHEREAS CMB ARE SEEKING INCREASES OF ABOUT 30 PER CENT. THE EFFECT OF THESE PROPOSALS, IF THEY ARE APPROVED, WOULD BE TO MAKE THE FARES CHARGED ON SIMILAR ROUTES APPROXIMATELY THE SAME ON BOTH SIDES OF THE HARBOUR.
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