MTR Corp signed a non-binding Memorandum of Understanding with the government of the Hong Kong Special Administrative Region on April 11, setting out terms for the proposed merger with Kowloon-Canton Railway Corp.

The deal provides for MTR to make an upfront payment of HK$4·25bn for a Service Concession ’to acquire certain rail assets from KCRC and to manage KCRC’s operations and rail-related businesses for 50 years’. A further payment of HK$7·79bn will cover a property package with development rights, investment properties and property management rights. In addition, MTR will offer KCRC an annual fixed payment of HK$750m during the life of the Service Concession, plus an annual variable payment based on KCRC’s rail revenue.

The merger is subject to a bill that must be passed by Hong Kong’s Legislative Council. The proposals must also be approved by MTR Corp’s minority shareholders - 24% of MTR Corp shares are privately owned, while KCRC is fully owned by the government. The process is expected ’to take one year or more to complete’, according to MTR.

Assuming the merger goes ahead, passengers can look forward to fare reductions and better interchanges - these were among the criteria set by the government for the merger. Specifically, the second boarding charge will be abolished, and all adult Octopus smart card fares of HK$12 or above will be reduced by at least 10%. Other fare reductions are also planned, and MTR has confirmed that the ’vast majority’ of fare reductions will be funded by ’merger synergies’. All frontline staff are to be retained.

MTR Chairman Dr Raymond K F Ch’ien said that the proposed merger is ’a balanced package that is fair to all stakeholders’, while Hong Kong Chief Executive Donald Tsang said it would bring ’tremendous benefits to the community’.