http://7thspace.com/headlines/410786/grant_of_new_franchises_to_three_bus_companies.html
Hong Kong (HKSAR) – The Chief Executive in Council (CE-in-Council) today (April 24) approved the granting of new ten-year franchises to New World First Bus Services Limited (NWFB), Long Win Bus Company Limited (LW) and Citybus Limited (Citybus) in respect of its franchise for the Airport and North Lantau bus network (Franchise 2).
The new franchise for NWFB will run from July 1, 2013 to July 1, 2023, and that for LW and Citybus (Franchise 2) from May 1, 2013 to May 1, 2023. The main operating area for NWFB is Hong Kong Island. LW’s bus routes ply between the New Territories (except Tseung Kwan O) and North Lantau (including the Airport) while those for Citybus (Franchise 2) ply between urban areas/Tseung Kwan O and North Lantau (including the Airport).
A government spokesman said that according to the established practice and in keeping with the relevant provisions of the Public Bus Services Ordinance (Cap 230), incumbent operators who have proven themselves to be capable of providing proper and efficient public bus services, and are willing to further invest in their franchised bus operations, would generally be granted new franchises for a period of ten years.
He said that since the commencement of their current franchises in 2003, the three bus companies have provided satisfactory services to passengers in terms of safety, reliability and standard of service, and environmental protection.
They have also demonstrated a commitment to making considerable capital investment towards replacing about 70 per cent of their existing fleet with new buses from 2012 to 2016.
“In negotiating for the new franchises, the three bus companies, having taken into account the views expressed by members of the public in the public engagement process, have committed to provide more fare concessions, to enhance safety and service standards, implement environmental improvement measures, and accept new terms in respect of enhancement of regulation of their operations.
“They were therefore each granted a new franchise of ten years, commencing immediately upon the expiry of their current ones for a smooth continuation of services,” the spokesman said.
On fare concessions, NWFB, LW and Citybus (Franchise 2) are currently providing 116 bus-bus interchange (BBI) concession schemes, as well as section fares for 112 (or 88 per cent) of their 128 routes.
When the new franchises commence, a total of 60 new fare concession schemes will be offered. They include 27 new BBIs (comprising 11 inter-company ones) and new section fares for 27 routes. The new schemes will bring more convenience and fare savings for local passengers in the major service areas of the three bus companies, namely airport workers, residents of Tung Chung, Hong Kong Island and Tseung Kwan O.
The spokesman added that a new franchise clause was introduced which will empower the Commissioner for Transport to require the bus companies to provide facilities or designs for the enhancement of the general service and safety standard of buses.
These include adopting barrier-free and elderly-friendly features on new buses. In addition, the bus companies have committed to allowing passengers to bring foldable bicycles on board buses, providing facilities to reduce potential fire hazards and to enhance passenger safety, as well as other positive measures.
On environmental protection, the bus companies will be required to buy the most environmentally friendly and technologically proven buses commercially available when acquiring new vehicles (with the ultimate objective of using zero emission buses). They will also be required to adopt commercially available technologies and products on their buses to reduce exhaust and noise emissions as far as practicable.
As for the provision of bus service information for passengers, the bus companies will be required to disseminate more service-related information to the travelling public on board buses as well as through the Internet and smart phone applications. The bus companies have also committed to install more Liquid Crystal Display (LCD) panels at major bus termini for the display of route information and bus departure times, as well as LCD panels or other devices inside the bus compartments to provide more detailed route information.
The CE-in-Council has taken into account the advice of the Transport Advisory Committee (copy attached) when considering the proposed granting of new franchises to the three bus companies. The relevant Legislative Council Brief has also been uploaded onto the website of the Transport and Housing Bureau (www.thb.gov.hk).
Source: HKSAR Government
Commissioner for Transport
Dear Mr Lai,
please see the link to the attached banker’s blog with information regarding Citybus.
We would welcome your response to these interesting facts.
Yours sincerely,
James Middleton
Chairman
www.cleartheair.org.hk
http://alexbhturnbull.tumblr.com/
Text
March 10, 2012
Excess Rents Hong Kong Style: Citybus
As some of you know I am a bit of greenie and get pretty angried up about air pollution. HK’s air pollution is due to two things: regional air pollution, largely from Guangdong that Hong Kong can arguably do little about (the biodome idea was shot down) and roadside pollution principally caused by buses and trucks about which it could do a lot more. There is a great paper here from 2009 that outlines what HK could do about its air pollution, bus regulation is the best “bang for the buck” thing that HK could do with a 6.3 cost to benefit ratio. Paper here.
As buses are regulated utilities I thought I’d look into the financials of these businesses and the documents governing their concessions to see just what was causing them to be so slow to turn over their bus fleet – maybe fares are too low, or perhaps they face exceedingly high costs of some kind, leaving them limited extra cash to invest in newer, cleaner buses. Crazier things have happened though HK’s other utilities like Power Assets Holdings (formerly Hongkong Electric), CLP and Transport International Holdings (listed entity holding the Kowloon bus franchise) have pretty standard returns on equity that would not look out of place in most jurisdictions though Transport International seemed to be earning some fairly ridiculous returns from 98-03 and again in 04-05.
Well, as you can see here for the bus franchises owned by New World – Citybus in particular – that is most certainly not the case (numbers extracted from here). Citybus’ headline ROA numbers is way higher than their 9.7% mandated level and if you look into their depreciation accounting it is much higher.
You see, when you look at the concession agreement for Citybus (Transport Department link here) a few things jump out. Firstly, the depreciation of the buses is 15 years straight line to $1 – so the buses can be readily written down zero or close to it, which is funny because they are almost there – the bus fleet is about 12.5 years old now on average meaning there are a number of assets older than 15 years that are held at $1. Cute, though under ROA type regulation there is no free lunch: if you haven’t got any assets you aren’t entitled to any returns. That does not seem to be the case here – if you take their depreciation at face value Citybus is earning some major excess rents and the Transport Commissioner should explain why New World gets special treatment.
What is a much better representation of Citybus’ returns is when you ignore depreciation and look at cash capital expenditures net of proceeds from disposals. Net cash capex for these business is pretty close to zero – $4.5mm Hong Kong which is absurd when a new Euro V bus costs $3-4mm Hong Kong. So the cash return on book assets they making is close to 30-40% which is the sort of return you expect on a high risk mining venture, not a regulated utility in Hong Kong.
What is more, these disposals are a source of no doubt significant excess rents for New World. Here is how I would take advantage of the Transport Commissioner being asleep at the switch:
1) Get an ROA way above requirement due to aggressive depreciation accounting that is unassailable because its in the terms of your concession and thus protected by contract. Watch the Transport Commissioner do nothing. (we know this is happening from these accounts)
2) Sell older buses at artificially low book values as your regulated fares don’t take account of this in calculating your asset returns. Use proceeds to fund the bare basement capital expenditure you do. Net result: almost no cash capital expenditures.
3) When the concession comes up, buy back refurbished buses at prevailing market rates to ensure you have an asset base on which to earn fares. Claim that you are making a big investment when bidding for the concession.
4) At every available opportunity cry poor about oil prices.
Net-net: 20-30% cash returns for 10 years on government utility type risk.
What can I say? I’m clearly in the wrong game. The bigger question is why isn’t anyone doing anything about this, and why does Transport International not get to play at this game? Its numbers look pretty aggressive too (depreciation at ~900mm HKD, versus capex that looks lower) but Citybus is taking it to another level.
Tags: hong kong hk citybus new world air pollution
From: Franchise Renewal [mailto:franchise-renewal@td.gov.hk]
Sent: Monday, October 03, 2011 09:16
To: James Middleton
Subject: Re: Bus Franchise Requirements
|
Dear Sir/ Madam,
Thank you for your email offering your views on the requirements of the bus franchises. We have put your views in our record, and will consider them together with all other comments received.
Regards,
Transport Department
“James Middleton” <dynamco@netvigator.com>
01/10/2011 16:13 |
|
Transport Department
1 The time for submissions needs to be extended to allow further studies and submissions and you have not provided copies of current Franchise documents for evaluation.
2 The document you provided permits the bus companies to continue using Euro 1 and Euro II through Euro V vehicles whereas existing Franchise documents already require that any replacement vehicles must be of Best Available Current Technology which is Euro V (soon to be Euro VI). Any new deal means the companies should comply with BACT rather than outdated polluting current buses.
3 Transport department should not be making unilateral decisions that would impinge on other departments’ responsibilities namely, Air Quality.
4 Roadside pollution in Hong Kong is already diabolical and rates next to the worst performing 3rd world countries in the emissions of lethal PM2.5. which comes from the combustion of fossil fuels. The Central roadside PM2.5 levels are nine times higher than Vancouver and double those of Singapore. Mongkok and Causeway Bay are worse.
5 There seems to be no incentive to allow the bus companies to bring in hybrid buses which would be best suited here given the topography and hills.
6 There should be a date set and made known to all that certain areas will be designated Low emissions Zones where only Euro V or later or hybrid / electric buses will be allowed to operate. Setting this into Law will make the bus companies comply accordingly.
7. Transport Department personnel and their children have to breathe the same pollutants as the public and they should realise that health and environment come first and the profits of the bus business tycoons last.
James Middleton
Chairman
www.cleartheair.org.hk
From: panel_t [mailto:panel_t@legco.gov.hk]
Sent: Thursday, October 20, 2011 10:21
To: James Middleton
Subject: Re: please advise when this wil be discussed
Dear Mr Middleton,
Thank you for your email.
The Panel on Transport will further discuss “Franchises of New World First Bus Services Limited, Long Win Bus Company Limited and Citybus Limited (Franchise for the Airport and North Lantau bus network)” at its meeting on Monday, 7 November 2011, at 4:30 pm in Conference Room 1 of the Legislative Council Complex. The Panel will receive views from the public on the requirements of the new franchises at the meeting.
Interested members of the public can give their views by providing written submissions, or/and attending the meeting to present their views to the Panel. Those who wish to attend the meeting to present views are requested to complete the reply slip at:
http://www.legco.gov.hk/general/english/sec/invite_s/tp20111018.htm
Regards,
Panel on Transport
Recycle rubbish and waste — should be a mantra for everyone