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Hong Kong's high speed rail link facing delays, budget shortfalls

The Express Rail Link, which will plug Hong Kong into China’s national high speed network, was initially scheduled to be completed by the end of 2015, but now is likely to be delayed to the third quarter of 2018.

HONG KONG: With an on-time rate of 99.9 per cent, Hong Kong's Mass Transit Railway (MTR) is often called the best public transport operator in the world.

That figure, according to CEO Lincoln Leong, means a commuter in Hong Kong who uses MTR to travel to and from work every day would encounter one five-minute delay every three years.

But a high speed rail project has landed the firm in an unfamiliar spot.

The Express Rail Link, which will plug Hong Kong into China’s national high speed network, was initially scheduled to be completed by the end of 2015. MTR now says it will be delayed to the third quarter of 2018.

With delays comes with budget overruns. The firm has asked for another HK$19.42 billion (US$2.5 billion) from the government, which owns a 76 per cent stake in MTR, on top of the HK$65 billion initial budget.

Mr Leong, who became CEO last year after his predecessor’s contract was terminated, says construction has proven to be harder than expected despite an extensive geologic survey. A labor crunch in Hong Kong has also taken a toll.

"The shortage of labor in HK has driven up construction costs significantly,” Mr Leong said. “One looks at the government’s construction cost index, from 2010 to 2014, there was something like a 50 to 60 per cent increase."

The firm would repay almost all of the HK$19.42 billion in additional costs through two special dividends. A shareholders’ meeting is scheduled for Feb 1 to vote on the payout plan.

But first, the Finance Committee of the Legislative Council will have to approve the additional funding bill. It will not be easy to convince lawmakers, considering the project is already the most expensive in the world on a per-kilometre basis.


The Express Rail Link is only 26 kilometres long and when it is completed, the train ride will last just 14 minutes. But the project will end up costing US$10.83 billion, working out to be US$416 million per kilometre.

In comparison, China spends US$20 million for every kilometre of its high speed rail network, according to the World Bank, Meantime, a high speed train line under construction in California is expected to cost US$56 million per kilometer.

Unlike other high speed rail projects around the world, the Express Rail Link is entirely underground, including a massive four-storey terminal in downtown Kowloon. MTR has argued the design, due to Hong Kong’s complicated topography, is the biggest reason for the high cost.

In 2010, the Hong Kong government estimated that the direct economic benefits the rail link could bring over 50 years would total HK$87 billion. Most of the benefits will come from hours saved by travellers.

Once the project is completed, travel time from Hong Kong to Guangzhou will be cut by half to 50 minutes. Riding the train to Shanghai will take eight hours, instead of 20 hours.

But many in the city’s pro-democracy camp have from the beginning questioned if the rail line was worth building at all. Protesters laid siege to the Legislative Council building when the project was approved in 2010.  

"We think it's a lot of money, but so little benefit. Now of course we have to wait many more years to see any benefit at all," said pro-democracy Legislative Councillor Emily Lau.

Some economists have said that the government underestimated benefits the rail link can bring. Frances Lui, head of the economics department at the University of Science and Technology, said the official projection did not take into account the 10,000 jobs created and underestimated wage growth, or time value of the hours travellers save.

He said, according to his analysis, that “the benefit-to-cost ratio is higher than 2-to-1, which means that it is very worthwhile to pursue the project, despite the increase in costs and disregard for many of the indirect effects”.

(Photo: AFP/STR)


But economics aside, pan-democrats are also troubled by a government proposal to have a joint border checkpoint. With it, travelers would not need to go through border clearance twice, a lengthy process that otherwise could take away the benefit of travelling on the high speed rail.

But that also means mainland border control officials would be stationed in Hong Kong, which the pan-democrats believe violates Hong Kong’s "one country, two systems" status.

Critics of the pan-democrats argue that it makes no sense holding a rail project hostage over the issue, especially when the project is 75 per cent complete.

“In Europe, two different sovereign nations can have co-location of checkpoints. It makes no sense that China and Hong Kong can’t do this,” says Andrew Leung, an independent consultant who served as Hong Kong’s Deputy Secretary for Transport in the 1990s.

The juxtaposed controls agreement among France, Belgium and Britain means when traveling across the English Channel, travelers go through passport control before embarkation, but not when they arrive on the other side.

But objection to the joint border checkpoint in Hong Kong has grown louder after local bookseller Lee Po disappeared. Many of his supporters suspect he was abducted by Chinese authorities in the city.

"There's so little trust, people do not trust them, of course we won't let them do it. With other places, they respect each other, of course they can do it," Ms Lau said.

But Mr Leung countered that it is dangerous for the opposition to thwart Hong Kong’s economic integration with mainland China over politics.

“Some people think Hong Kong can be an island. Hong Kong cannot be an island.  If this kind of mentality repeats itself, Hong Kong will be shut out of the bigger economy,” he said.

MTR has cautioned that if more money does not arrive by the end of February, works on the Express Rail Link would have to be halted.

That means some 7,000 construction workers and engineers would lose their jobs, a daunting prospect for the economy, which grew just 2.3 per cent in 2015, the slowest pace since the Global Financial Crisis in 2008.