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There had been some discussion of merging KCRC, which was also government-owned, and the MTR to make the territory's transport system more efficient. The MTR Corporation Limited (MTRCL) backed such a merge while the KCRC opposed the plan. In March 2004, the Hong Kong Government officially encouraged the two companies to merge.
On 11 April 2006, the Hong Kong Government officially announced the details of the proposed merger. Under the non-binding Memorandum of Understanding the Government has signed with KCRC, KCRC would grant a Service Concession to the MTRCL to operate the KCR system, with an initial period of 50 years. The KCRC would receive a one-time upfront payment of HK$4.25 billion, a fixed annual payment of HK$750 million and a variable annual payment based on revenues generated from operation of the KCR system. In addition, MTRCL would make a payment of $7.79 billion for the acquisition of property and other related commercial interests.
The railway lines the KCRC operated were less profitable than the MTRC, and the KCRC was less active in property development. It was widely considered[by whom?] that the Government's choice was to avoid being criticised for selling assets of the KCRC – which it wholly owned – to MTRCL at an underpriced level. Leasing the operation right of the KCR system to the MTRCL could avoid actually selling the KCRC.
On 2 December 2007, the Chinese name of the MTRCL was changed to 香港鐵路有限公司 (Jyutping: hoeng1gong2 tit3lou6 jau5haan6 gung1si1; literally: 'Hong Kong Railway Corporation Limited') after being granted the Service Concession while the English name will remain unchanged. The KCRC is now a holding company of the KCR system, without actual railway operations. The merger was approved by shareholders of the MTRCL on 9 October 2007. The merger is effective for 50 years.
All adult Octopus Card holders would be the first to benefit from the merger. Student and Concessionary Octopus holders would also benefit from the merger by further reducing $0.1 from their 50% off fares. Student Octopus holders would continue to pay the current reduced concessionary fares on the MTR network. Elderly Octopus holders would be introduced to a new fare system which only the elderly can enjoy a $2 fare to anywhere on the MTR network (excluding Airport Express, Light Rail, and Cross-Boundary Stations).
- "Press Release: Government has reached understanding with MTRCL on the terms for merging the MTR and KCR systems". Hong Kong SAR Government. 11 April 2006. Retrieved 17 November 2007.
- "Rail Merger Bill" (PDF). Legislation Council of the Hong Kong SAR. Retrieved 8 November 2007.
- "Appointments announced for post-merger MTR Corporation Limited" (Press release). Hong Kong Government. 8 August 2007. Retrieved 10 November 2007. (Comparing with the Chinese version)
- "Rail Merger Bill to be introduced into Legco (English name remain MTR)" (Press release). Hong Kong Government. 8 June 2006. Retrieved 15 November 2007. (Comparing with the Chinese version Archived 9 September 2009 at the Wayback Machine)
- Railway Merger Proposal in Hong Kong Gets Green Light, Hong Kong Economic and Trade Office in United States.
- Fact Sheet (Eng), Merger of the MTR and KCR systems.
- Elders ride on the MTR on Sundays and public holidays for just $2 for the whole journey.