After an arbitration held at the Hong Kong International Arbitration Centre in September last year, the two independent arbitrators, one appointed by the Government and one by the New Hong Kong Tunnel Company Ltd. (NHKTC), awarded NHKTC a toll increase of $10 for private cars with corresponding increases for other categories of vehicles at the Eastern Harbour Tunnel. By agreement of the Government and the NHKTC, the arbitrators have also specified in the Award that the toll increase will come to effect on 1 May 2005. As a result the toll schedule will be adjusted with effect from Sunday 1 May 2005 as follows:-

Background

The Eastern Harbour Tunnel is a BOT (Build, Operate, Transfer) franchise project which commenced in 1986 and lasts 30 years. The investor is responsible to build and operate the tunnel and will transfer the tunnel and the operation back to the Government when the franchise expires. In return, the investor - the NHKTC - is entitled, as stipulated by law (the Eastern Harbour Crossing Ordinance), to a "reasonable but not excessive remuneration" as remuneration for building and operating the tunnel for the franchise period.

The Eastern Harbour Crossing Ordinance provides that the tolls may be varied by agreement between the Chief Executive in Council and the NHKTC, but in the absence of agreement, either party may make a submission to arbitration for a final decision.

Since the NHKTC's commencement of operation, its return has been below "a reasonable but not excessive" level. It was obliged to apply for a toll increase for the first time in 1995. This application was rejected by the then Governor in Council. NHKTC then sought arbitration from an independent arbitrator. The arbitration was held in February 1997. The arbitrator awarded an increase of $5 for private cars, and a proportionate increase for other vehicles with effect from 1 January 1998.

The arbitrator's main conclusions for the 1997 Award were:

In 2002 the financial position of the NHKTC indicated that, without a further toll increase, the IRR of the NHKTC would fall below the level of reasonable remuneration established by the arbitrator. The NHKTC therefore applied on 27 September 2002 for a second toll increase of $5 for private cars and a proportionate increase for other vehicles to take effect from 1 January 2003.

The NHKTC had hoped that the Chief Executive in Council would approve its application in 2002, in accordance with the principles established in 1997 by the independent arbitrator. However, after ten months' consideration, the application was rejected by the Chief Executive in Council on 15 July 2003. The NHKTC then gave notice to the Government on 6 August 2003 for an arbitration of its second toll increase application. In this application, the Government, instead of appointing the same arbitrator as the NHKTC, appointed another independent arbitrator. Having considered the evidence and submissions of both parties at the hearing in September 2004, the two independent arbitrators came to a common view that the NHKTC should be awarded the second toll increase with the conclusion as follows:

To allow time for making the necessary preparations in Government and at the NHKTC, it has been decided that the date of implementation of the toll increase should be Sunday, 1 May 2005.

The NHKTC will introduce a temporary, special discount for empty taxis using the tunnel. Taxi drivers are currently entitled by law^ to charge passengers $15 as return fare for a destination across the harbour via the Eastern Harbour Tunnel where the hiring does not begin from a cross harbour taxi stand. In order to allow sufficient time for the relevant legislation to be appropriately amended for the return journey and so that taxi drivers do not have to absorb the $10 (difference between the current toll of $15 and the new toll of $25) for a return journey they make without a passenger in the meantime, the NHKTC will maintain the tunnel toll for empty taxis at the current level of $15 from 1 May 2005 until end of June 2005.

* The reason an increase of HK$10 is required now, whereas the NHTKC had applied for a HK$5 increase in its application in 2002, is because the franchise to operate the tunnel expires on a fixed date in 2016 and there is less time for the NHKTC to earn the reasonable but not excessive remuneration to which it is entitled.