Road
to 5**：Fare Adjustment Mechanism

(picture 1)

The MTR has decided to freeze train fares and issue 50-percent rent cuts to small- and medium-sized tenants of its shops at all MTR stations and its 13 shopping malls for February and March.

【明報專訊】Following the merger of the two railway companies in 2007, the Fare Adjustment Mechanism(可加可減機制) was introduced into the MTR to replace the MTR's previous autonomy in setting train fares. The mechanism was one of the terms of the merger. It was incorporated into the agreement between the MTR and the government and is legally binding.

The mechanism

The mechanism adopts a direct-drive formula. This mean that the mechanism goes into effect automatically when the result of the formula exceeds a certain value.

◆Formula

(See picture 1)

Overall fare adjustment rate =

“ 0.5 x year-on-year change in the Composite Consumer Price Index (CCPI)” + “0.5 x year-on-year change in the Nominal Wage Index (Transportation Section)(Wage Index)” - “ Productivity Factor”◆

Conditions

If the adjustment rate is lower than minus 1.5 percent or higher than 1.5 percent, the mechanism is triggered. Otherwise the adjustment rate is carried forward.

Review

The mechanism is reviewed every five years. In the 2013 review, a profit-sharing mechanism, service performance arrangements and “an affordability cap” (「封頂機制」，which limits the change in fare price within the change in the median household income) were introduced.

MTR: we welcome a review

Since its inception, the Fare Adjustment Mechanism has been criticized for allowing the MTR to raise fares every year. In fact, the accumulated rise in MTR fares has now reached at least 33 percent. Rex Auyeung (歐陽伯權), chairman of the MTR, said in September 2019 that the mechanism was aimed at coming up with an objective formula to calculate fare adjustments. He said that as the Hong Kong economy had been growing yearly, the formula produced a positive percentage every year. He said the MTR was willing to communicate with the government earlier if the government proposed conducting a review earlier. But he stressed that as the MTR was a listed company, it had to answer to its investors.

Fares freeze

With the COVID-19 pandemic wreaking havoc, the MTR announced on 20 February that it was introducing special measures to help citizens. In the entire year of 2020, train fares would be frozen. Ben Chan (陳�絔g), a lawmaker, said that a fares freeze was not enough and the MTR should cut its fares by five to ten percent. Michael Tien (田北辰), another lawmaker, warned that the MTR would just carry the fare hike forward to next year.

Translated by Terence Yip

[通通識 第646期]

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