Untitled - HKU Libraries - The University of Hong Kong

4.6.13 Based on cost breakdowns supplied by the MTRC, the average price increase for railprojects was 40% to 50% in this two-year period.4.6.14 While the recent surge in construction costs relative to general inflation is worrying,it is by no means certain that this trend would continue over the Study forecastperiod. However, if the relatively higher rate of inflation in the construction industry. continues unabated, it could have serious implications for the completion of theprogramme of transport projects recommended by this Study.Future Investment Funds4.6.15 While total public expenditure is likely to continue to rise in line with the growth inthe economy, the share of public expenditure for transport infrastructure must haveregard to competing claims from other sectors of public expenditure, such asenvironmental protection, education and medical services. This has made it difficultto forecast with any certainty what the transport share of public expenditure wouldbe within the duration of the planning period covered by this Study. Recognisingthis uncertainty and working on the basis of certain assumptions, Governmentexpenditure guidelines have put the share of public sector capital expenditure onnon-rail transport projects at $2.5 billion (in 1988 prices) per annum over theduration of the planning period. Of this, $2 billion was assumed to be available forfunding major highway projects. With the objective of avoiding overheating of theconstruction industry, it is Government's view that expenditure by the private sectoron highways should, in future, substitute for public funds, rather than supplementthem. In other words, privatisation of future highway projects should not expand thetotal investment programme for transport.4.6.16 The construction of the MTR and much of the LRT system was financed by theprivate sector on the basis of borrowings on world capital markets, backed by equityinjections from Government in the case of the MTR. This is likely to continue to bethe means of financing rail projects, with the long term prospect that passengerrevenue surpluses can be used to finance new rail projects after the current debtshave been paid.73