Madam President, on behalf of the Public Accounts Committee (PAC), I have the honour to table our Report No. 38 today.

The Director of Audit's Report No. 38 was submitted to you on 3 April 2002 and tabled in the Legislative Council on 24 April 2002. The Report tabled today contains the conclusions reached by the PAC on the Director of Audit's Report.

At the time when PAC Report No. 37 was finalized, the PAC's deliberations on the subject of "Mechanized street cleansing services" were continuing. A full report on this chapter was therefore deferred. The PAC has now concluded our deliberations and the supplemental report on this chapter is also tabled together with our Report No. 38 today.

In line with our usual practice, we have selected for detailed examination only those chapters in the Director of Audit's Report No. 38 which, in our view, referred to more serious irregularities or shortcomings. The Report tabled today covers our deliberations on four of the five subjects selected. We have decided to defer a full report on the subject "Residential services for the elderly" to allow ourselves more time to examine the complex issues involved, such as the provision of infirmary services and the allocation of financial resources between the Hospital Authority and the Social Welfare Department following any delineation of their responsibilities in this regard. The PAC will endeavour to finalize our report to the Council at the earliest opportunity.

Pursuant to the implementation of the accountability system for principal officials, the statutory functions exercisable by the Bureau Secretaries who had appeared before the PAC at the public hearings were transferred to the relevant new Directors of Bureaux with effect from 1 July 2002. In our Report, the titles of the Bureau Secretaries current at the time of the public hearings are used. To facilitate readers of the Report, we have added a footnote against the title of the Bureau Secretary when it first appeared in a chapter, to highlight the transfer of statutory functions under the accountability system.

I now turn to the substantive issues covered in this Report.

Mechanised street cleaning services

The PAC's report on the subject of "Mechanized street cleansing services" had been deferred as we needed time to examine the many tiers of staff in the chain of command in the Environmental Hygiene (EH) Branch of the Food and Environmental Hygiene Department (FEHD) involved in providing mechanized street cleansing services, and how such a bloated structure operated in the provision of the services.

Having deliberated the issues, the PAC is gravely concerned and finds it unjustified that a hierarchy of 10 tiers of staff, from the Director of Food and Environmental Hygiene to Ganger, is involved in supervisory duties over the delivery of mechanized street cleansing services. Despite the elaborate system of supervision in its EH Branch, the FEHD still found it necessary to set up an additional Quality Assurance Section. We consider the present multi-layered bureaucratic structure of the EH Branch an obstacle to the provision of efficient mechanized street cleansing services.

We are seriously dismayed that although the Secretary for the Civil Service had issued a circular in November 1998 urging all Heads of Departments to review immediately the existing systems on staff supervision, there is still slackness in the FEHD's management of outdoor staff. The cleansing staff of the mechanized gully cleansing teams and street washing teams have scheduled idle time, other than normal rest time, in their daily work, resulting in underutilization of their capacity. When a street is being flushed, only the Special Driver of the street washing team operating the street washing vehicle is working while other team members are idle. Besides, significant portions of the mechanized street sweeping and mechanized gully cleansing services in the day shift were suspended in 2000 for various reasons.

We are astonished that, immediately after the Audit review, the FEHD was able to reduce six mechanized street sweeping routes and six mechanized gully cleansing routes, thus achieving annual savings of about $2.83 million and about $4.33 million respectively.

Liberalisation of the local fixed telecommunications market

When considering the subject of "Liberalization of the local fixed telecommunications market", the PAC is seriously concerned that six years after the introduction of competition to the local fixed telecommunications network services (FTNS) market, the new operators have achieved a market share of only 10%. In particular, their market share in the residential sector is only 5%. Compared to its counterparts in some advanced countries, the Office of the Telecommunications Authority (OFTA) provides much fewer performance indicators for gauging whether competition is working effectively in the local FTNS market.

Regarding the availability of consumer choice, the PAC is concerned that, according to the results of Audit's survey conducted in November 2001, not all customers served by the co-located exchanges had a choice of switching to the service provided by the new operators.

We are also seriously concerned over the lack of actions by the OFTA, in respect of the cases identified in Audit's survey, to enforce the licence conditions which require operators to provide service to customers served by the co-located exchanges. We urge the Director-General of Telecommunications to ensure that the operators will maintain as far as possible the achievement of 100% service availability to customers in the co-located areas at all times, and to take vigorous actions against those operators not achieving this target.

Financial performance of the Post Office

Having examined the subject of "Financial performance of the Post Office", the PAC considers that the Post Office's mode of operation has been very inflexible in terms of the number and location of branch post offices, manpower provision, service hours and pricing structure, and this goes against commercial principles. This appears to be the root cause of the Post Office's being less competitive than private operators, and explains why an overseas postal administration and some overseas mailers are able to exploit the subsidized local postage rates and selectively give the Post Office only those mail items which are costly to deliver.

We are seriously concerned that, with the exception of 1996-97 and 1997-98 when the Post Office had substantial windfall profits from philatelic products, the Post Office had not achieved the target return of 10.5% per annum on fixed assets in the past seven years. Moreover, the Post Office has still not drawn up any plan that can help it achieve the target return in the foreseeable future.

We note the Postmaster General's view that the profitability of the three new ancillary services, viz the postshop service, the e-post service and the remittance service, should be assessed on marginal cost basis (that is, excluding the fixed costs). However, we consider that it will be more appropriate for the Post Office, being a trading fund that operates along commercial principles, to assess the profitability of its services on full cost basis. We, therefore, urge the Postmaster General to expeditiously review these three ancillary services and set target dates for them to achieve a reasonable rate of return, taking into account the full cost of providing the services. If a reasonable rate of return cannot be achieved, the Postmaster General should consider ceasing the provision of these three services.

In addition, we are seriously dismayed that the estimated annual overtime allowance claimed by delivery postmen of all the 1 690 delivery beats which could not be justified by workload, would amount to $21.3 million at 2001-02 prices. We urge the Postmaster General to review the Post Office's system of controlling and monitoring the overtime work of delivery postmen to ensure that the guidelines laid down in the relevant Civil Service Bureau circular are fully complied with.

In examining this chapter, we observe that some government officials tend to be parochial and are keen to protect their resources without realizing the full cost of their doing so. In this connection, we note that many branch post offices are occupying valuable government premises at prime location, involving a high economic opportunity cost.

Management of construction and demolition materials

Regarding the subject of "Management of construction and demolition materials", the PAC is gravely concerned that the Administration has not given due consideration and attached importance to the concept of environmental protection, as evidenced by the cases relating to the implementation of the Penny's Bay Reclamation Stage 1 (PBR1) works and the entrustment works of the Container Terminal No. 9 (CT9) project.

We are seriously concerned that due to the collapse of the newly constructed seawall in Area W30 of the Tseung Kwan O reclamation contract (TKO Contract), the planned delivery of 3.6 million tonnes of public fill from the TKO Contract to the PBR1 Contract could not be made. Instead, marine sand had to be used in the PBR1 Contract. We are dismayed that an additional cost of $7.7 million will be incurred in order to make arrangements to remedy the loss of opportunity to use the planned public fill in the PBR1 Contract. This is not yet the full cost. The site in TKO Area 137 will have to be occupied for stockpiling and sorting 3.6 million tonnes of public fill for about two years, which involves a notional land opportunity cost in the region of $6 million to $7 million per annum.

As regards the entrustment works of the CT9 project, we are concerned that in the land grant of CT9, there was no provision requiring the developer to use public fill in the Government's entrustment works. As a result, the Government was unable to use 1.8 million tonnes of construction and demolition materials in the CT9 project. The surplus construction and demolition materials would have to be stockpiled in fill banks with a notional handling cost of $50 million.

Slope safety and landslip preventive measures

Turning to the subject of "Slope safety and landslip preventive measures", the PAC is seriously concerned that the coverage of the New Catalogue of Slopes is still incomplete, as about 4% of the registrable man-made slopes (that is, about 2 000 slopes) might not have been identified and registered, and the number of landslips involving "missed" slopes, as revealed by the systematic studies of landslips from 1998 to 2000, was 62, or 6.5% of the total number of landslips, indicating that these slopes may still pose a threat to public safety.

We are concerned that, up to the end of November 2001, the Works Bureau had not yet formulated any detailed work plan for the slope maintenance departments to achieve the target of improving 2 400 slopes by 2010, and for the works departments to achieve the target of upgrading 900 slopes by 2010. We are also concerned that, by March 2010, there will still be 16 000 old government slopes to be dealt with. In this connection, we acknowledge that the Director of Civil Engineering will commence in the end of 2002 a review to formulate a long-term strategy for tackling these remaining substandard slopes, with a view to formulating the strategy by 2004.

Furthermore, we are concerned that there was a significant number of slope failures involving new slopes which had not been subject to proper geotechnical control, and the practice of allowing the works departments the discretion of not making geotechnical submissions is at variance with the stated intention of the Geotechnical Engineering Office (GEO) that all the new slopes are subject to its geotechnical control.

We, therefore, urge the Director of Civil Engineering to take up a coordinating role to ensure that the geotechnical designs of slope works will be submitted by the works departments to the GEO for checking.

Concluding remarks

Madam President, as always, in performing our duty, the PAC is mindful of our role in safeguarding the public interests by continuing to prod for the delivery of high quality public services in an efficient and cost-effective manner.

I wish to record my appreciation of the contributions made by members of the PAC. Our gratitude also goes to the representatives of the Administration and other organizations who have attended before the PAC. We are grateful to the Director of Audit and his colleagues as well as the staff of the Legislative Council Secretariat for their unfailing support and hard work.

Thank you.

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