25TH LEGCO REPORT TO HKSA COUNCIL By Hon. Eric K.C. Li

The Report also contains the Public Accounts Committee's Supplemental reports on three chapters in Report Nos. 35 and 36 of the Director of Audit on the results of value for money audits which were tabled in the Legislative Council on 15 November 2000 and 25 April 2001 respectively.  The Committee's Report Nos. 35 and 36 were tabled in the Legislative Council on 14 February 2001 and 4 July 2001 respectively.

We have held one further day of public hearings to receive evidence on the subject PAC Report 37 No. 6 "Mechanised Street Cleansing Services".  The hearing highlighted the cumber some management structure of the service concerned.

The Panel held 9 meetings  (including 4 special meetings - to discuss the reinsurance cover for employee compensation insurance policies, to receive a briefing by the Secretary for the Treasury (S for Tsy) on the report of the Task Force on Review of Public Finances, to study the consumer protection in the banking sector, receive a briefing by S for Tsy and the Chairman of the Advisory Committee on New Broad-based Taxes on the report of the Advisory Committee; an informal meeting to discuss the draft research report on practices of overseas jurisdictions in building up or maintaining their fiscal reserves as well as a working meeting to discuss the research on fiscal reserves.) to date and the relevant agenda are attached as Appendix I.

On 21 February 2002, the Secretary for the Treasury (S for Tsy) has provided the Panel on the report of the Task Force on Review of Public Finances.  She revealed that the budget deficit for 2001-02 was expected to rise to $66 billion and stay in a similar range for the next five years.  She warned that Hong Kong's $369 billion fiscal reserves will be wiped out by 2008-09 if the administration does not cut spending or raise taxes.

A proposed list of future agenda items is attached as Appendix II for reference. 

The Panel held 5 meetings since the last report.

The Panel focused on Hong Kong Disneyland, the reorganization of Port and Maritime Board Division in Economic Services Bureau as well as Mid-stream Fees.  It discussed the proposal to ban Chapter 2 wide-bodied aircraft operating to and from Hong Kong, the tourism development projects as well as the enhancement of the protection of Hong Kong tourists visiting the Mainland.

It also studied the Approval scheme for domestic gas appliances, Hong Kong Wetland Park at Tin Shui Wai - Phase 2 works as well as the Subsidiary Legislations under the merchant Shipping (Local Vessels) Ordinance (Cap. 548) and Shipping and Port Control Ordinance (Cap. 313).

There were 2 special meetings to discuss the electricity tariff for 2002 as well as the enhancement of the protection of Hong Kong tourists visiting the Mainland.

The Panel held 4 meetings to date.

The Panel received a briefing by the Administration on two IT-related survey reports, to discuss the E-government programme in 2002 as well as the implementation of the Full Liberalization of the Fixed Telecommunication Network Services Market from 1 January 2003.

It also discussed the progress of the Cyberport Project, the administration of Internet domain names in Hong Kong, the consultation on the reduction of licence fees for mobile carrier licences, the community IT user support service, the development of Digital Entertainment in Hong Kong as well as to review the Electronic Transactions Ordinance.

There was a joint meeting with Security Panel to discuss issues in relation to the non-immigration applications for incorporation into the Smart ID card as well as Registration of Persons (Amendment) Bill 2001.

The Panel held 4 meetings to date.

The Panel mainly focused on the proposed research outline on education voucher system, enhancing support for Education and Manpower Policy Making, future model of the Hong Kong Education City as well as to receive a briefing on arrangements for implementing the "Through-train" Mode; discussed the Report of Curriculum Development Council entitled "Learning to learn - the way forward in curriculum development", Kindergarten Subsidy Scheme, native-speaking English teachers/English language teaching assistants for primary schools.

It also studied the preliminary study on reviewing the progress and evaluating the Information Technology in Education projects, the regulation of tutorial schools as well as the issue of students with learning difficulties.

There was a special meeting to discuss the objectives and assessment criteria for applications of the Quality Education Fund.

There were 5 meetings held since the last report.

The Government is considering reactivating this Bill as part of the United Nation's anti-terrorism efforts.  The Administration highlighted to the Bills Committee the need to close legal loopholes relating to money-laundering.

However, I raised doubts about changes to the Drug Trafficking and Organized Crime (Amendment) Bill 2000 that would ensnare innocent people.  In other countries, it seems that their laws only target organisations, not individuals, at any rate only those who have handled cash.  But this proposal targets the individual, any individuals, and makes them criminally liable.

The Bills Committee has held 55 meetings (70 sessions) with the Administration over a 14-month period.  In examining the details of the Bills, the Bills Committee has met with deputations from the brokerage and banking industries, legal and accounting professions, academics and small investor groups and sought their views on the Bills.  The Bills Committee has received a total of 48 submissions from 21 organizations and four individuals.  The Bills Committee has also conducted an overseas duty visit to study the financial systems in the United Kingdom (UK) and the United States (US) and to meet with major international market players in these places.

The Second Reading debate on the Bill will be resumed at the LegCo on 13 May 2001.

The Bills Committee has held a total of 4 meetings.  The Bill seeks to improve the operation of the Banking Ordinance (Cap. 155) (BO) by providing for: -

1. the control over Authorized Institutions' places of business;

2. the regulation of Internet advertisements for deposits;

3. the maintenance by Authorized Institutions (AIs) of adequate systems of control to ensure the fitness and properness of their "managers";

4. the establishment of local representative office by non-deposit-taking banks;

5. the rationalization of the availability of the general defence under section 126 of BO;

6. the notification by Monetary Authority (MA) of his decision on an application to use the name "bank" and the appeal from MA's decision to the Chief Executive in Council;

7. the requirement that the relevant shares of a controller, to whom MA has served a notice of objection, shall be transferred to a nominee of MA; and

8. the enactment of a redrafted section 71 of BO relating to the approval of chief executives and directors by MA.

In considering the Bill, Members of the Bills Committee had expressed doubts about the need to require authorized institutions (AIs) to notify the Hong Kong Monetary Authority (HKMA) before the opening of local offices.  The Administration had explained that the notification requirement was to enable HKMA to know the locations of local offices to ensure that business was conducted in a proper manner.

Members had also raised concerns that the revised definition of "manager" would capture a broader spectrum of bank officials than under the current definition, and that more persons, including some lower level executives, would be caught by the strict liability offences in the Banking Ordinance.  To ensure that a person was aware that he had been designated as a manager under the Ordinance, the Administration had agreed to introduce a Committee Stage amendment (CSA) to require AIs to give notice in writing to the person within 14 days on his appointment as a manager.  To prevent over-regulation of and intrusion into the autonomy of an AI in the appointment of senior staff, HKMA would make it an authorization criterion for AIs to maintain adequate systems of control to ensure the fitness and properness of their managers.

The Bill was passed on 19 December 2001.

The Bills Committee has held a total of 5 meetings, including one meeting with industry groups and professional bodies to receive their views.  The principal objects of the Bill are:

1. to introduce a number of technical amendments to the Mandatory Provident Fund  Schemes Ordinance (Cap. 485) to better protect the interests of members of mandatory provident fund (MPF) schemes and enhance the effective operation of the MPF System; and

2. to confer on the Mandatory Provident Fund Schemes Authority (MPFA) certain  functions and powers to facilitate its regulation of MPF schemes.

The Bills Committee had studied the scope of the MPFA's regulatory powers, including its powers to borrow money; add or amend conditions or impose new ones on approved trustees, registered MPF schemes and approved pooled investment funds (APIF); and require the guarantor of an APIF to maintain adequate reserves.

The Administration had agreed to move Committee Stage amendments (CSAs) to address the concerns raised by members, including stipulating the temporary nature of and limited circumstances under which MPFA's power to borrow money could be invoked, and providing for a definition of "conditions" to mean "reasonable conditions" to ensure that the existing conditions amended or new conditions imposed by MPFA on trustees or APIF must be reasonable ones.

The Bill was passed on 6 February 2002.

The Bills Committee had held 5 meetings to discuss the Bill and listened to the views of deputations.  The Bill aimed at introducing a statutory corporate rescue procedure in Hong Kong to assist companies in financial difficulty to turn around.

The Bills Committee supported the concept of corporate rescue, but had doubts about the proposed requirement that before the commencement of the corporate rescue procedure, either all outstanding wages and liabilities of employees had to be paid, or sufficient funds must be provided for in a trust account for the purpose.  Members were concerned that as there was no ceiling for such amounts, it was unlikely that a company in financial difficulty would have sufficient money to fulfil the requirement.  This proposed requirement might therefore create a substantial obstacle to the commencement of corporate rescue procedure, thus defeating the purpose of the Bill.

To address members' concern, the Administration had proposed that the sum payable to each employee would be capped, and it would consult the relevant parties on the new proposal.  As the Administration expected that the consultation would take about 3 months, the Bills Committee decided that the scrutiny of the Bill should be held in abeyance, so that its slot could be taken up a Bills Committee on the waiting list.

The Bills Committee has held 4 meetings.  The Bill is to amend the Kowloon-Canton Railway Corporation Ordinance (Cap. 372) to create the office of Chief Executive Officer of the Kowloon-Canton Railway Corporation ("KCRC").

The Bills Committee had examined whether and how the proposed separation of the functions and duties of the Chairman and the CEO would enhance effectiveness, transparency and accountability.  The Bills Committee had also reviewed the monitoring role of the Secretary for Transport and Secretary for the Treasury who also sat on the KCRC Board.

The Administration had accepted the Bills Committee’s suggestion to include a provision in the Bill requiring the Chairman and the CEO to attend meetings of committees and subcommittees of the Legislative Council (LegCo) upon request to enhance accountability.

The Bill was passed on 19 December 2001.

The Subcommittee had held 15 meetings and had discussed in detail the provisions of the Occupational Safety and Health (Display Screen Equipment) Regulation and the draft Health Guide.

The Subcommittee will report to the LegCo House Committee on 22 March 2002 after heavy amendments to drastically reduce its scope to cover only dedicated data processing personnel.

There were 3 meetings held since the last report.  The Subcommittee seeks to study how Kowloon-Canton Railway Corporation (KCRC)’s handling of the contract for the West Rail telecommunications systems awarded to Siemens Ltd. and the 27 supplemental agreements with contractors for 18 West Rail contracts.

In response to concerns expressed by the public on these issues, the Managing Board of KCRC has asked a firm of professional accountants to conduct a thorough investigation into the Corporation’s tender evaluation and contractual performance monitoring systems in connection with the West Rail telecommunications contract. The accountants will also investigate and report on the 27 supplemental agreements.