There has been some concern over the government's proposed subsidy of HK$120 million for Hong Kong's ferry companies that operate six outlying island routes. These subsidies average out to HK$40 million per year for three years from 2011.

It is expected that tenders for the operation of the services for a new term will be sought by year end. The subsidies will certainly increase the attractiveness to potential bidders. Without the subsidies, much sharper hikes in fares than deemed tolerable by commuters will have to be allowed, or the ferries would become commercially non-viable.

The company that currently provides the services between Central and Cheung Chau and Mui Wo on Lantau has lost around HK$20 million since it started in 2000. The company that runs services between Central and Peng Chau and Lamma claims to have lost several million dollars over the past 10 years.

Many people believe that the government should abide by the principle of free enterprise and should not therefore subsidize a commercial concern. There are also fears that it could encourage other public transport operators to ask for the same considerations.

However, "principles" are to be respected for their good sense, and not as dogmas. If a subsidy improves the public interest it can be well justified.

The outlying islands are important to Hong Kong. Hong Kong is a small place with a huge population. Apart from the site of the homes for hundreds of thousands of Hong Kong residents, they offer wonderful space and amenities for relaxation and recreation for other Hong Kong residents and visitors. The outlying islands add to the richness of life that Hong Kong offers, and strengthen its competitiveness in attracting international talents. One of the conditions for the ferry companies to keep the subsidy is that they reduce fares on weekends. The weekend fares are currently much higher than on weekdays. These higher fares of course make good economic sense when the ferry companies are running a deficit or are barely able to make ends meet. But if the islands still have excess capacity and the fares are keeping some of the amenities underutilized, and if the fares are inhibiting lower-income people from enjoying them, then the fares may be excessively high, even though they contribute to improving ferry companies' finances.

To conclude, maximizing the public interest has to be the overriding principle. I do not worry about other companies demanding subsidies. If they can demonstrate that a subsidy would further the public interest, I would concur with the subsidy. By the same token, I have argued that raising the toll on the central harbor crossing and subsidizing the western crossing makes eminent sense. The "subsidy" can be thought of as a price the government pays to buy the services of relieving congestion on the central crossing. As long as benefits exceed costs, subsidies can be justified. The challenge is to convince the public that this is indeed the case.

The author is director of the Centre for Public Policy Studies, Lingnan University

(HK Edition 04/27/2010 page1)