The Food and Environmental Hygiene Department recorded a deficit of HK$160 million in the 2007-08 fiscal year during its time running the public markets, according to the Audit Commission, which also claims the markets are poorly managed.

The commission, in a report released yesterday, found that the deficit was incurred even for highly patronized markets, because the department charged lower than market level rents and failed to recover its pre-paid cost of establishing these markets.

More than 80 out of the 104 public markets in Hong Kong incurred a deficit in the 2006-07 fiscal year, with 11 of them having lost more than HK$5 million each.

The department, on average, charged only about 60 percent of market-level rent. In an extreme case in Ngau Tau Kok Market, the tenant was paying less than 1 percent of market-level rent, or HK$112, a month for a stall she had rented to sell wet goods since 1996.

Low rents were charged in an attempt to encourage itinerant hawkers to surrender their licenses and move into public markets.

Only 15 percent of tenants were paying full market-level rent, the commission said.

The lower rent has affected the service quality of the market, as the tenants might have rented the stalls for purposes other than running an active retail business, the commission found.

The commission highlighted the management of Kimberly Street Market in Tsim Sha Tsui, where the department outsourced the management and maintenance of the ground floor and basement to two tenants.

But the commission found no market services provided in the basement, as many trading commodities specified in the tenancy agreement were unavailable, and there were no customers.

The Independent Commission Against Corruption, which has been reviewing the management of markets, indicated to the department in July that the basement was not being used in accordance with the tenancy agreement.

"The arrangement of always awarding the market's management and maintenance contracts to the tenants without conducting market tests is not satisfactory," the report said. "There was an apparent and direct conflict of interest, as the tenants were both the sole tenants and the sole management agent of the market."

The vacancy rates for 34 markets have reached 30 percent or higher. The viability of Tai Kok Tsui Market in the long-term was questioned by the commission for having a high vacancy rate.

The commission urged the department to review the needs of providing public markets, as the number of licensed hawkers dropped from 9,900 a decade ago to 7,200 in March, and the proliferation of supermarkets has also changed the retail trend.

The department said it is reviewing the existing market-rental adjustment mechanism and will step up controls over the management of Kimberly Street Market.

(HK Edition 11/27/2008 page1)