Government Toll-Tunnels

REVIEW OF THE YEAR 2010-11

ACTIVITIES * Tunnels in use : Aberdeen Shing Mun Tseung Kwan O Route 8K

* Change in annual traffic : Aberdeen increased by 2.2% Lion Rock increased by 2.3% Shing Mun increased by 1.2% Tseung Kwan O increased by 6.3% Route 8K increased by 26.6%

* Toll charges : $ Aberdeen 5 Lion Rock 8 Shing Mun 5 Tseung Kwan O 3 Route 8K 8

FINANCIAL * Revenue increased by 5.4% PERFORMANCE * Expenditure increased by 0.3%

* Surplus after taxation increased by 34.4%

* Return on Average Net Fixed Assets increased from 1.1% to 1.4%

1 Government Toll-Tunnels

OPERATING ACCOUNT FOR THE YEAR ENDED 31 MARCH 2011

2011 2010 Note $M $M

Revenue 2 641.1 608.2

Expenditure 2 519.1 517.4

Surplus before taxation 122.0 90.8

Taxation 1(d) and 3 20.1 15.0

Surplus after taxation 101.9 75.8

FINANCIAL PERFORMANCE MEASURES

Average net fixed assets (ANFA) 1(g) and 4 7,142.1 7,084.0

Actual return 101.9 75.8

Target return 599.9 595.1

Actual return as % of ANFA 1(f) 1.4% 1.1%

Target return as % of ANFA 8.4% 8.4%

The annexed notes form part of these accounts.

2 Government Toll-Tunnels

BALANCE SHEET AS AT 31 MARCH 2011

2011 2010 Note $M $M

Net assets employed

Fixed assets 1(b) & (c) and 4 7,181.7 7,102.5

Current assets 5 1,328.9 1,168.3

Current liabilities 6 (7.1) (7.0)

Net current assets 1,321.8 1,161.3

Deferred tax 1(d), 3 and 7 (184.6) (164.5)

8,318.9 8,099.3

Financed by

Public capital account 8 8,318.9 8,099.3

The annexed notes form part of these accounts.

3 Government Toll-Tunnels

NOTES ON THE ACCOUNTS

1. Accounting Policies

(a) Basis of The Government-built toll-tunnels do not have a separate legal identity. All Accounting surpluses are deemed to be distributed to the Government as dividend. The operating accounts are management information to reflect the operating results of the facilities.

The accounts have been prepared on the historical cost basis of accounting modified to include notional receipts and payments.

(b) Fixed Assets (i) No cost is included for land except that the cost of resumption is included in the capital cost of tunnel construction and road works for Route 8K.

(ii) For capital projects, the costs include the actual direct expenditure, staff costs for design, planning and supervision during the construction period.

(iii) All other fixed assets are stated at their cost less accumulated depreciation except capital works/projects in progress which are stated at cost.

(c) Depreciation Depreciation is provided on a straight-line basis calculated to write off the cost of assets less residual value over their estimated useful lives. The annual rates of depreciation used are :- Tunnel construction and road works 1% (Route 8K) 2% (Other toll tunnels) Buildings 2% Lighting and ventilation 5%-10% Equipment 10% Motor vehicles 11%-13%

No depreciation is provided on assets under construction.

(d) Taxation (i) Notional profits tax is provided, where necessary, based on the expected taxable surplus for the year, using tax rates prevailing at the balance sheet date, and any adjustment to tax payable in respect of previous years. No provision for notional profits tax has been made in 2010 and 2011 as there is no taxable surplus for the years.

(ii) Deferred tax is recognised, where appropriate, for all material temporary differences between the tax bases of assets and liabilities and their carrying amounts in the accounts. Deferred tax assets are recognised to the extent that it is probable that taxable surplus will be available against which the temporary differences can be utilised. Provision for deferred tax has been made in the accounts in respect of all material temporary differences attributable to depreciation allowances on fixed assets.

(e) Employee Employee benefits including salaries, gratuities, pensions, housing benefits and Benefits annual leave are accrued and recognised as an expense in the year in which the associated services are rendered by employees.

4 Government Toll-Tunnels

NOTES ON THE ACCOUNTS

(f) Actual Return EmployeeThis is calculated benefits as including a percentage salaries, of surplus/deficit gratuities, pensions,after taxation housing to average benefits net andfixed annual assets (ANFA)leave are. accrued and on ANFA

(g) Average Net The average net fixed assets (ANFA) represents the average of the opening and closing value of total net fixed assets. Fixed Assets

2. Revenue and Lion Shing Tseung Route 2011 2010 Expenditure Aberdeen Rock Mun Kwan O 8K Total Total $M $M $M $M $M $M $M Revenue

Toll collections 114.4 251.9 86.4 85.0 94.7 632.4 599.6 Toll charges from Government vehicles 0.6 1.0 0.5 0.3 0.4 2.8 2.7 Toll charges from tunnel tickets for people with disabilities 0.3 1.1 0.2 0.2 0.2 2.0 2.1 Miscellaneous receipts 1.5 0.9 0.5 0.5 0.5 3.9 3.8

116.8 254.9 87.6 86.0 95.8 641.1 608.2

Expenditure

Staff costs 1.0 1.0 1.0 0.9 2.8 6.7 6.7 Operating and administration expenses 5.5 13.6 6.0 7.5 28.0 60.6 60.3 Management fees to contractors 37.4 39.7 30.0 30.0 134.1 271.2 271.2 Depreciation 25.3 18.0 16.8 14.2 106.3 180.6 179.2

69.2 72.3 53.8 52.6 271.2 519.1 517.4

Surplus / (deficit) before taxation 47.6 182.6 33.8 33.4 (175.4) 122.0 90.8

3. Taxation 2011 2010 $M $M

Notional profits tax - -

Deferred taxation for the year 20.1 15.0

Taxation for the year 20.1 15.0

No provision for notional profits tax has been made in 2010 and 2011 as there is no taxable surplus for the years.

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NOTES ON THE ACCOUNTS

4. Fixed Assets Tunnel Construction Lighting and and Motor Assets under Road Works Buildings Ventilation Equipment Vehicles Construction Total $M $M $M $M $M $M $M

Cost At 1 April 2010 6,483.0 636.8 915.9 692.9 58.9 32.4 8,819.9 Additions 171.3 21.7 22.4 31.7 - 12.7 259.8 Transfer - - - 18.8 - (18.8) -

At 31 March 2011 6,654.3 658.5 938.3 743.4 58.9 26.3 9,079.7

Aggregate Depreciation At 1 April 2010 850.9 59.2 288.4 484.0 34.9 - 1,717.4 Transfer ------Charge for the year 83.4 13.0 40.4 39.8 4.0 - 180.6

At 31 March 2011 934.3 72.2 328.8 523.8 38.9 - 1,898.0

Net Book Value At 31 March 2011 5,720.0 586.3 609.5 219.6 20.0 26.3 7,181.7

At 1 April 2010 5,632.1 577.6 627.5 208.9 24.0 32.4 7,102.5

5. Current Assets 2011 2010 $M $M

Debtors 25.5 24.1 Current account with Treasury 1,303.4 1,144.2

1,328.9 1,168.3

6. Current 2011 2010 Liabilities $M $M

Receipts in advance 7.1 7.0

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NOTES ON THE ACCOUNTS

7. Deferred Tax 2011 2010 $M $M

Balance as at 1 April 164.5 149.5 Deferred taxation for the year 20.1 15.0

Balance as at 31 March 184.6 164.5

8. Public Capital The Public Capital Account represents Government's investment in this utility. Account 2011 2010 $M $M Balance as at 1 April 8,099.3 7,909.4 Addition 219.6 189.9

Balance as at 31 March 8,318.9 8,099.3

9. Capital 2011 2010 Commitments $M $M Capital expenditure contracted for 19.3 47.4 Capital expenditure authorized but not yet contracted for 190.8 278.7

210.1 326.1

10. Securitisation In May 2004, the Government issued a $6 billion Toll Revenue Bond to be repaid by Arrangement the net toll revenues generated by six government-owned tunnels and bridges, namely , Cross-Harbour Tunnel, Lion Rock Tunnel, , and Lantau Link.

In February 2010, the Government has fully discharged its financial obligations under the securitisation arrangement.

The securitisation arrangement does not have any impact on the operating accounts. It is a financial arrangement and the ownership of the relevant tolled facilities is retained by the Government.

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STATISTICAL HIGHLIGHTS

Financial Statistics

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $M $M $M $M $M $M $M $M $M $M

Revenue 550.2 542.6 531.7 532.9 538.9 548.0 557.0 580.9 608.2 641.1 Expenditure 261.8 255.7 245.6 227.8 243.3 245.0 262.0 524.7 517.4 519.1 Surplus after taxation 242.1 234.6 236.0 251.8 247.2 250.0 243.4 55.4 75.8 101.9 Average net fixed assets (ANFA) 1,461.8 1,472.1 1,456.7 1,427.6 1,399.3 1,375.5 1,764.6 6,965.4 7,084.0 7,142.1 Return on ANFA (%) 16.6 15.9 16.2 17.6 17.7 18.2 13.8 0.8 1.1 1.4 Target Return on ANFA (%) 12.0 12.0 12.0 12.0 12.0 8.4 8.4 8.4 8.4 8.4

7500

7000 18 6500

6000

15 5500 Return on ANFA 5000

4500 12

4000

3500 $ Million$ 9

Target Return on ANFA

3000

2500

Returnon ANFA (%) 6 2000 ANFA

1500 3 1000 Revenue

500 Expenditure

Surplus after taxation 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year Year

8 Government Toll-Tunnels

STATISTICAL HIGHLIGHTS

Operating Statistics

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Number of vehicles using tunnels (million)

Aberdeen 21.3 21.2 20.6 21.1 21.2 22.0 22.5 22.4 22.6 23.1

Lion Rock 33.0 32.6 32.2 31.8 32.3 32.7 32.7 30.6 31.1 31.8

Shing Mun 19.7 19.9 19.3 19.4 19.4 19.3 19.8 17.3 17.2 17.4

Tseung Kwan O 26.5 24.6 24.2 24.7 24.8 25.6 26.6 26.2 26.8 28.5

Route 8K N/A 0.1 6.9 9.4 11.9

100.5 98.3 96.3 97.0 97.7 99.6 101.7 103.4 107.1 112.7

35

Lion Rock 30

25

Tseung Kwan O

Aberdeen 20

Shing Mun 15

No. ofNo. Vehicles (Million) 10

5 Route 8K

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year

9