1 Plan wins support, but price tag an issue
Joyce Ng Oct 01, 2008

Economists, cruise operators and lawmakers have generally applauded the government's move to shoulder the construction costs of a new cruise terminal at Kai Tak, but democrats have their doubts about it.

The plan can prevent charges of government-business collusion and bring more flexibility to the project, said Charles Li Kui-wai, associate professor of economics and finance at City University. "Now that it doesn't need to give floor space to developers, the government can instead build an exhibition complex and arts venues."

As long as the government hands the business operation to the private sector, he added, the project would be a sound investment in infrastructure.

One cruise operator had no objection to the relatively short tenancy period of about seven to 10 years for the operator. Massimo Brancaleoni, a vice-president of Italy's Costa Crociere cruise line, said the tenancy agreement to operate a terminal was usually between 20 and 25 years, to allow more time to recoup the construction cost.

But in Hong Kong, he said, since the government was shouldering the cost, it was reasonable that different terms would be imposed. Mr Brancaleoni sits on the government's advisory committee on the cruise industry.

Democrats are concerned about the costs. "It is an expensive project," lawmaker Fred Li Wah-ming said. "We are worried that the terminal will become a replica of Disney. The government boasted how the theme park would boost the economy and attract many tourists, but all that has fallen short of expectations."

The Democratic Alliance for the Betterment and Progress of Hong Kong would support the project, lawmaker Chan Kam-lam said: "We need a confidence boost in the face of the financial tsunami. This is the quickest way to get it done," he said.

Liberal Party lawmaker Miriam Lau Kin-yee also backed the plan. "Large cruises are now unable to berth at Ocean Terminal," she said. "We badly need a larger one to maintain our status as a tourism city."

Ronny Tong Ka-wah of the Civic Party agreed. "We were disappointed that the two consortiums failed to follow the rules in the last tender. It is appropriate the government now takes it into its own hands."

Paul Tse Wai-chun, legislator-elect for the tourism sector, also expressed support, saying the plan would attract tourists. "But a good transport link will be necessary to transmit cruise passengers to other tourist spots, because the first berth will come ahead of other developments at Kai Tak."

 

2 Government to splash out HK$7.2b on cruise terminal Administration urged to explain costs of Kai Tak project
Gary Cheung, Dennis Eng and Joyce Ng Oct 01, 2008

The government will spend HK$7.2 billion to build a cruise terminal at Kai Tak amid fears that surging construction costs and financial turmoil have deterred private companies.

This adds to a growing list of projects funded by the administration, including the West Kowloon Cultural District and the bridge linking Hong Kong to Zhuhai and Macau .

The government will design and build the cruise terminal and lease the facilities to a private operator while retaining ownership of the site and terminal. The operator will be granted a tenancy of about seven to 10 years. The first berth is expected to begin service in mid-2013 and the full-fledged terminal building will be completed in 2014-15.

The successful bidder will design, build and operate the berths and supporting facilities under the original development approach announced by the government in October 2006.

It was originally hoped that the first berth would begin operating in February 2012. But the government said in July that the terminal would not be ready until spring 2013 at the earliest when it invited fresh bids after the two consortiums vying for the project were rejected for failing to meet government requirements.

Cruise operators generally supported the government's decision as retendering the project would further delay the project.

All major political parties urged the government to break down the HK$7.2 billion construction costs. Democratic party lawmaker Fred Li Wah-ming feared that the project would become "a replica of Hong Kong Disneyland", which was unable to recoup the huge investment.

The government has also decided to scale back the 50,000 square metres of commercial, office and retail facilities in the terminal building to about 10,600 square metres.

Secretary for Commerce and Economic Development Rita Lau Ng Wai-lan said construction costs had surged significantly and it was difficult to predict future trends.

The May material indices for galvanised mild steel, sand and steel reinforcement increased by 60 per cent, 104 per cent and 137 per cent respectively since January last year.

"In view of the recent financial-market tsunami, this would add risk and uncertainties to cost and capital financing of the project," Mrs Lau said. "We will run the risk of further delay if we test the market again through another land tender."

She said the alternative approach would enable the government to commission the first berth in 2013 with greater certainty.

A government source said the estimated construction cost of HK$7.2 billion was higher than the government's 2006 estimate of HK2.4 billion. "But the original estimate did not cover commercial facilities which would be built by the operator under the original model."

The source said there was no estimate on how long it would take to recoup the HK$7.2 billion construction cost.

"We are talking about the overall economic benefits of the project, not only the commercial returns."

Mrs Lau said tourism was an important pillar of Hong Kong's economy and it would be in the city's interests to finance the project.

The government estimates that the cruise industry would bring economic benefits of about HK$2.5 billion and up to an extra 9,000 jobs a year from 2023.

Raymond So Wai-man, associate professor in finance at Chinese University, questioned how officials came up with the economic benefits.

"The government has to make it clear whether it is direct or derived benefits such as a rise in adjacent land value and employment opportunities," he said.