The Executive Council has approved the structure and terms for merging Hong Kong's two railways under a package proposal that will benefit the community and balance all stakeholders' interests, Secretary for the Environment, Transport & Works Dr Sarah Liao says.

In a media briefing hours after Chief Executive Donald Tsang announced the news, Dr Liao said the proposed pact, that would see the merger of the Kowloon-Canton Railway Corporation with the MTR Corporation Limited, met five key parameters:

* there would be fare reductions upon the merger;

* a new fare-adjustment mechanism will allow fares to go down as well as up, according to a transparent formula;

* fully integrated interchange links will be provided for the Shatin to Central link;

* both railways' frontline staff enjoy job security related to the merger; and

* interchange arrangements will be enhanced.

On the right track: MTR and Government officials sign a memorandum of understanding; Dr Liao and Mr Ma answer press queries; KCRC Chairman Michael Tien, Dr Liao, Mr Ma and MTR Chairman Mr Chi'en celebrate the new deal.

"The travelling public will get immediate benefits," Dr Liao stressed. "There will be an overall fare reduction on the first day for 2.8 million daily passenger trips."

If the Legislative Council passes the merger bill, which is expected to be presented to lawmakers before the end of summer, the proposed deal will be presented to the MTR Corporation's minority shareholders for approval. The Government has a 76.5% stake in the MTR and owns 100% of the KCRC.

The entire process is expected to take a year to complete. From today, neither railway company will increase fares for 24 months.

Under the proposal, the KCRC will grant a service concession to the MTR to use its assets to operate its rail system, for an initial 50-year period, Secretary for Financial Services & the Treasury Frederick Ma explained.

The MTR will retain its listing status, and will be the legal entity of the post-merger corporation. It will be responsible for daily operation and maintenance of the KCR system, and will pay all operating capital expenses during the period.

The MTR will pay the KCRC:

*  $4.25 billion upfront for the consession and to acquire stores and spares;

* $750 million annually for the duration of the concession;

* an amount of the revenue generated from the use of the KCRC's assets, beginning in the fourth year, on a sliding scale; this share would be 10% of revenue higher than $2.5 billion up to $5 billion, 15% for the next $2.5 billion, and 35% of revenue beyond $7.5 billion; and

* $7.79 billion for a property package that includes development rights along East Rail, Ma On Shan Rail, Light Rail and Kowloon Southern Link, investment properties related to East Rail and Light Rail and KCRC's property management business.

Rail commuters will benefit from fare cuts from the first day of the merger, Dr Liao said. These savings include:

* a global fare reduction of 20 cents for all Octupus users paying full fares, and a $1 cut for journeys that cost $12 or more;

* the abolition of the second boarding charge of $1 to $7;

* a guaranteed minimum 10% cut for passengers whose journeys' fares are $12 or more - benefitting about 340,000 trips a day;

* a guaranteed minimum 5% cut for passengers whose journeys' fares are $8.50-$11.90 - benefitting about 1.16 million trips a day; and

 * a $2 per-trip concession for seniors travelling on Sundays and public holidays in the merger's first year.

The fare-adjustment mechanism will ensure the travelling public will be able to enjoy more predictable fares in the future, MTR Chairman Dr Raymond Ch'ien said. It will be linked to the consumer price index, a wage index and a productivity factor.

"The public would like to see a fare-adjustment mechanism that can go up or down," Dr Laio said. "If there is inflation, fares will go up, if there's deflation, fares will go down, so it's linked to the cost of living."

Both the MTR and KCRC will do their utmost to take care of their staff, Dr Ch'ien said, adding frontline staff will not be made redundant. They include employees directly and regularly involved in the operations of the stations, trains, maintenance, stores and security, at non-managerial levels, who have been on continuous employment terms or contract terms of more than two years.

Initially staff will be retained on their original terms of service and employment, but eventually there would be a unified package of employment terms. Staff would be consulted, Dr Ch'ien stressed.

As there will be more development opportunities after the merger, especially on the Mainland, they expect to have 1,300 job vacancies in the first few years. "The staff in the new corporation can be given training to adapt to new duties," he said.

There may be as many as 600 or 700 posts to be eliminated due to synergies, he added, but staff will be given retraining opportunities and everyone will be treated in a fair and equitable manner.

The Legislative Council has the proposal, Dr Liao said, adding the financial affairs and transport panels would be briefed on its contents tomorrow.

"We will listen to their views and to all the views of the stakeholders," she said. "We feel we've struck a balance in the interest of all stakeholders."