Evaluation Criteria
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3.5
3.6
3.7
A unique feature of the ICS is that it is required to compare possible alternative transport investments made by private sector operators (bus, tram, LRT) with an investment made by the MTRC which is a public sector corporation. All of these operators have to meet their own definition of financial viability a definition which is not expressed as a specific discount rate as required by the form of analysis adopted by the ICS. The Study Team, as noted previously, used a 12 percent discount rate in real terms before tax and no private operator has suggested that this is too high.
The MTRC on the other hand has pointed out that the definition of viability specified for them by the Government requires that they pay their debts off in a reasonable
period of time. The decisions with respect to the MIS and the Tsuen Wan Extension suggest that "a reasonable period" is 10-12 years. These projects had internal financial rates of return of the order of 13-15 percent in money terms, that is 6-7 percent in real terms.
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It is evident therefore that the 12 percent real rate used by the Study Team in ICS has not been previously applied · by the Government to MTRC projects. Given that the Brief for ICS required that private sector and public sector projects should be compared, and that there are substantial advantages for the formal evaluation process in using a common discount rate, the Study Team are of the view that the approach adopted todate has been the most helpful.
SA
Nevertheless it has been noted that if, as in the case of the MTRC, the public sector has to provide significant public transport infra-structure for any proposed system it is likely to require, as a minimum, a real discount rate closer to that used in the cost/benefit analysis than that adopted in the financial analysis during ICS.
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