TNAG-0426-FCO40-472-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 71

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In drawing up the cash-flow tables referred to above, the Steering Group has also had to make a number of assumptions as regards sources and applications of funds. These assumptions represent what the Steering Group considers to be realístic assessments of conditions likely to prevail over the next few years, having regard to present-day conditions and past trends. In some cases, the assumptions now adopted by the Group represent significant revisions of earlier assumptions. In particular, Honourable Members may wish to note the following points:

(a)

(b)

A revised fare structure has been applied to the Consulting Engineers' traffic volume estimates in assessing the fare revenue likely to be generated on the MTR. The fare structure previously assumed, which was devised in 1970 and which ranged from 20 cents to $1.20 per trip, aimed at relating fares to distances travelled as well as to current fares of surface modes of public transport for the same trips. But this was unsatisfactory because the two criteria could not be properly reconciled, and, in any case, the structure was prepared before the fare increases for KMB were approved in the latter part of 1971. The revised fare structure now assumed, which was drawn up in early 1972 and which ranged from 30 cents to $1.50 per trip, dropped the concept of a distance-related rate. Instead, it was based on a steady progression of fares from one station to the next on each route, ensuring that, overall, the fare for each route was not less than the highest current fare for the equivalent trip on surface modes of public transport. Experience indicates that passengers are prepared to pay more for a single through- mode of public transport like the MTR, particularly where a cross-harbour journey is involved (c. f. the popular cross-harbour bus service). An average increase in fares of 4% per annum as from 1972 has been assumed for the purposes of the cash- flow tables.

Cost escalation is assumed to be at an annual compound rate of 8% from mid-1972 for capital expenditure, and 6% from mid-1970 for recurrent expenditure. These figures compare and contrast with the previously assumed escalation factors of 5% and 4% respectively, and with the average 4% per annum increase assumed for MTR fares. These significantly higher escalation factors (which would mean, for example, that capital costs would be doubled in nine instead of 14 years) take account of world price movements in recent years, and of the various consortia's assessments of the extent to which costs would be likely to rise in their own countries over the next few years.

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