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First, the Democrats have argued that no fare increase should be given because of the "development package". This argument is flawed. But here, may I first correct the Hon Li Wing-tat's assertion that the Administration had entered into a secret deal with HKF. The basic terms had been made public. During the negotiations confidential discussion are necessary. Let me again outline again the general terms of the pier development package. Permission to allow HYF to develop their 4 new piers in Central District is subject to their acceptance of certain basic terms: These include (1) a private treaty grant with the payment of premium assessed at full market value. And here, the suggestion made by the Hon Albert Ho that a private treaty grant does not in fact result in full market premium I think with respect was a fairly wide and sweeping statement; (2) HKF must provide an undertaking that they will set aside for the benefit of ferry passengers at least HK$640 million or 60% of their development profits plus 50% of rental income whichever is more. The money will be used to implement a clearly defined service improvement programme and to cover part of HYF's operating loss.
What must be clearly understood is that with the development package, funds do not become available for at least 3 to 4 years. A fare increase is therefore absolutely essential now.
When I briefed the LegCo Transport Panel on the terms of the development package on 13 July 1995, I made it very clear that even with the development package HYF would still need to seek increase its fares in line with inflation to enable it to earn a very modest return. Even then, HYF is not expected to break even until 1999.
The Democrats have also suggested that because Hongkong Ferry (Holdings) Company (HKF), HYF's parent company, is making a profit, it should fund the operating losses of HYF and hence obviate the need for a fare increase. It must be emphasised that HKF is already relying on its other operations to keep the ferry services going. However, faced with mounting operating deficits, there would come a time when the total revenue HKF can generate from its other operations will be insufficient to cover HYF's losses. When this happens, as a listed company, HKF will be obliged to review its ability to maintain its existing ferry services, much less to implement any more service improvements.