Government maintains Fare Adjustment Arrangement for franchised buses

The Chief Executive in Council today (December 8)
approved that the current Fare Adjustment Arrangement (FAA)
for franchised buses, which includes a formula to assess the
level of supportable fare adjustment, should continue to be
adopted. While the components and their weightings in the
formula will be maintained, the value of productivity gain
in the formula will be set at zero until the next review in
three years' time.
The current FAA was put in place in January 2006 with
a view to enhancing the objectivity and transparency of the
fare adjustment process and enabling upward and downward fare
adjustments in accordance with economic conditions. In
assessing franchised bus fare adjustment for the purpose of
making recommendations to the Chief Executive in Council, the
Government would take into account a basket of factors which
include:
(i) changes in operating costs and revenue since the last fare
adjustment;
(ii) forecasts of future costs, revenue and return;
(iii) the need to provide the operator with a reasonable rate
of return;
(iv) public acceptability and affordability;
(v) quality and quantity of service provided; and
(vi) outcome of the fare adjustment formula (0.5 x Change in
Wage Index + 0.5 x Change in Composite Consumer Price Index
- 0.5 x Productivity Gain).
A spokesman for the Transport and Housing Bureau said
the Government had completed a review of the FAA and that based
on past experience, particularly in processing the fare
increase applications in 2008, the FAA was found to be working
well in general and should therefore be maintained.
"Although the fare adjustment formula has not triggered
any comprehensive fare review so far, it has enhanced the
responsiveness and objectivity of the fare adjustment process,
to the benefit of bus operators, passengers, and the general
public," the spokesman said.
Under the FAA, the Government will continue to monitor
the formula outcome on a quarterly basis and will proactively
initiate a comprehensive fare review if the formula outcome
reaches the -2% threshold.
In assessing the reasonable rate of return to franchised
bus operators, the Government will continue to make reference
to 9.7% rate of return on average net fixed asset (ANFA). The
9.7% rate of return on ANFA will continue to serve as the point
for triggering the passenger reward arrangement.
"The FAA for franchised buses will be reviewed again in
three years' time. This will allow us sufficient time to gain
more experience in applying the FAA in assessing fare
adjustments," the spokesman added.
The Government consulted the Legislative Council Panel
on Transport and the Transport Advisory Committee (TAC) in
October 2009. Members of the panel and TAC generally
supported the proposed way forward, particularly the
recommendation that a fuel element should not be added to the
fare adjustment formula.
Details of the FAA are set out in the Legislative Council
Brief issued today. The paper has been uploaded to the
Transport and Housing Bureau's website www.thb.gov.hk .