In a fresh agreement between the government and the MTR Corporation (MTRC), the latest estimated cost of the high speed rail project was set at HK$84.42 billion. The government will pay up the new amount, meaning the MTRC will have to pay for any further cost.
The latest estimate decreased by HK$880 million since the last cost estimate of HK$85.3 billion in June. The project is now expected to be completed in the third quarter of 2018.
Secretary for Transport and Housing Anthony Cheung Bing-leung said that the decrease was related to a drop in the project management fee, maintenance funds, and because the platform works of the phase two project were cancelled. He also said that five tracks planned for phase two of the project had been cut – originally, 15 tracks were to be constructed.
No indication of satisfaction
He added that the new agreement “does not mean that the government is satisfied with the corporation’s performance as project manager.” The government reserves all the rights to pursue the warranties and obligations from the MTRC in respect of project implementation, works delay and cost overrun.
The latest estimate is still HK$19.42 billion higher than the HK$65 billion budget the Legislative Council originally approved in 2010. The related government costs will also go up by HK$0.1825 billion. Around HK$50 billion out of the HK$65 billion has already been spent. Cheung said the funds would be completely depleted by mid-2016 and, if the new funding plan was not approved, the project would have to be suspended.
The MTRC will give a special dividend of HK$4.4 per share to shareholders, totalling HK$25.76 billion. As the government is a shareholder, it is set to receive HK$19.51 billion.
In the run-up to the end of June, the MTRC has HK$14.35 billion in cash reserves. It would mean that the MTRC may have to give all of the cash to the government, and borrow money to cover the rest of the special dividend.
Whether or not the MTRC shareholders pass the new plan, the government will seek approval of additional funding by the LegCo so as to increase funding to the project by HK$19.60 billion.
It will report to the Railways Subcommittee of LegCo on Friday before going to the Public Works Subcommittee and Finance Committee. Cheung said that they hoped to get the Finance Committee’s approval by the end of February next year.
Cheung added that, despite the delay and cost overruns, the government and the MTRC should not be suspend, give up or even terminate the contracts “as the consequences of such a scenario will be catastrophic, causing billions of dollars of loss in contractor’s claims and maintenance costs, as well as indirect costs relating to delay or disruption to land developments and [the] impact on the West Kowloon Cultural District development.”