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Conference on Public Private Partnerships Conference on Public Private Partnerships Opportunities and Challenges Opportunities and Challenges Some Aspects of the PPP Approach to Some Aspects of the PPP Approach to Transport

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Conference on Public Private Partnerships Conference on Public Private Partnerships – – Opportunities and Challenges Opportunities and Challenges Some Aspects of the PPP Approach to Some Aspects of the PPP Approach to Transport Infrastructure Development in Hong Kong Transport Infrastructure Development in Hong Kong

Chai-kwong Mak and Sau Mo Highways Department 22 February 2005

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Transport Infrastructure Project Development

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SLIDE 3

1) Conceptualization and strategic planning 2) Project definition and detailed planning 3) Project initiation, funding and authorization 4) Design, construction and commissioning 5) Operation, management and maintenance

PLANNING & ADMINISTRATION OF TRANSPORTATION INFRASTRCUTURE DEVELOPMENT

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SLIDE 4

1) Conceptualization and strategic planning 2) Project definition and detailed planning 3) Project initiation, funding and authorization 4) Design, construction and commissioning

Conventional Government Projects

5) Operation, management and maintenance

PLANNING & ADMINISTRATION OF TRANSPORTATION INFRASTRCUTURE DEVELOPMENT

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SLIDE 5

Capital Works Reserve Fund

Average Annual Expenditure (2004-09) HK$29 billion

  • 70. Over the next five years, capital expenditure

will amount to $43 billion a year on average, of which around $29 billion will be allocated to works projects.

  • - the Budget 2004-05
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SLIDE 6

1) Conceptualization and strategic planning 2) Project definition and detailed planning 3) Project initiation, funding and authorization 4) Design, construction and commissioning 5) Operation, management and maintenance

PPP Projects - BOO, BOT, etc.

PLANNING & ADMINISTRATION OF TRANSPORTATION INFRASTRCUTURE DEVELOPMENT

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SLIDE 7

Railway Development

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SLIDE 8

Lantau Island Kowloon Hong Kong Island New Territories Shenzhen Shekou

Lo Wu Sheung Shui Tai Po Ma On Shan Tseung Kwan O Tuen Mun Sha Tin Tsuen Wan Tung Chung Yuen Long Lok Ma Chau

LOW LMC SHS FAN TWO TAP UNI LEO MOS HEO CHG RAC SHM CIO SKS STT KOT LOF WTS DIH CHH KOB NTK KWT LAT YAT QUB NOP FOH TIH CAB WAC ADM CEN SHW HOK ETS HUH MKK MOK SKM PRE YMT JOR TST OLY NAC SSP CSW LCK MEF LAK KWF KWH TWH TSW TWW TSY CLK TUC TUM TIS LOP YUL KSR SIH WKPT KOW TAK SKW HFC CHW SWH TIK TKO TKS HAH POA FOT SHT TAW

WEST RAIL (PHASE I) SHEUNG SHUI to LOK MA CHAU SPUR LINE MA ON SHAN RAILLINK MTR TSEUNG KWAN O EXTENSION TSIM SHA TSUI EXTENSION PENNY'S BAY RAIL LINK

YAO PEB TAW

HONG KONG’s NEW RAILWAY PROJECTS - ROUTE MAP

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SLIDE 9

Financial Assessment Flow Chart

Population Employment Fare Structure Property Profit Capital Cost Operating Costs Asset Replacement Costs Other Costs

  • Pre-operating Cost
  • Land Cost

Financial Assumptions

  • Operating Life
  • Terminal Value
  • Financing Cost, Interest
  • Price Fluctuation
  • Depreciation
  • Taxation, etc

Patronage Fare Revenue Total Revenue Total Cost Transport Model Financial Model NPV IRR

Commercial Revenue

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SLIDE 10

Discounted Cash Flow Analysis

n

NPV = ∑ Ri – Ci

i=1

(1+r)i Ri = income in the ith year Ci = expenditure in the ith year r = discount rate n = project life (years) When NPV = 0, r is the FIRR

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SLIDE 11

Result of Financial Appraisal FIRR < Target FIRR

  • r

NPV < 0

Funding Gap (support) Funding Gap (support)

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SLIDE 12

Typical Evaluation of a Railway Project

Cost Net Income Year Capital cars Asset Replacem ent Operatin g cost Fare Business Income Propert y excl. Property Profit Property incl.

1 10

  • 10
  • 10

2 100

  • 100
  • 100

3 300

  • 300
  • 300

4 800

  • 800
  • 800

5 2,300

  • 2,300
  • 2,300

6 3,700

  • 3,700
  • 3,700

7 3,200

  • 3,200
  • 3,200

8 1,500 180 130 290 20

  • 1,500

830

  • 670

9 100 170 250 560 40 80 1,040 1,120 10 110 290 630 40 270 810 1,080 11 320 700 50 430 560 990 12 180 360 790 50 300 1,560 1,860 13 170 390 890 50 380 380 14 110 450 1,000 60 500 500 15 500 1,120 60 680 680

22 130 920 2,060 100 1,110 1,110 23 190 1,000 2,230 110 1,150 1,150 24 190 1,070 2,410 110 1,260 1,260 25 50 1,160 2,610 120 1,520 1,520 26 40 1,250 2,820 130 1,660 1,660 27 3,940 1,350 3,040 140

  • 2,110
  • 2,110

28 5,660 1,450 3,290 150

  • 3,670
  • 3,670

29 4,560 1,570 3,550 160

  • 2,420
  • 2,420

48

  • 2,590

6,630 15,530 580 12,070 12,070

FIRR = 7.0% 8.5%

NPV @ 8.5% = $7,289 $386 $2,350 $5,780 $13,113 $619

  • $2,073

$2,104 $31 Capital Cost $12,930 m Interest $2,100 m $15,030 m

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COMPLETION

Railway Corporation HKSAR Government

Project Agreement

Railway Development Planning Proposal Project Initiation Interface Coordination Commissioning Construction & Contract Administration Authorization Project Definition Detailed Planning &Design

PLANNING & IMPLEMENTATION OF RAILWAY PROJECTS

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SLIDE 14

RDS 1994 Projects

Project

Work Start

Work Complete

Cost ($M) (MOD) Equity injection ($M) (MOD) Property Rights

Airport Rwy 11-94 7-1998 35,100 23,700 Y Tseung Kwan O Line 11-98 8-2002 16,000 Y East Rail Extensions 11-00 3-01 10-02 12-04 10-04 [2007] 26,700 8,000 Y West Rail 9-98 12-03 46,400 29,000 Disneyland Resort Line 7-02 [9-05] 2,000 798

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Railway Development Strategy 2000

Shekou Shenzhen New Territories Hong Kong Island Lantau Island

Lo Wu Lok Ma Chau Sheung Shui Yuen Long Tuen Mun Tai Po Sha Tin Tsuen Wan Ma On Shan Tung Chung Tseung Kwan O

Kowloon Southern Link Shatin to Central Link Express Rail Link Port Rail Line Northern Link

Kowloon

North Island Line West Island Line / South Island Line

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Highways Development

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Route 3 Country Park Section Route 3 Country Park Section

TING TING KAU KAU

Tate’s Cain Tunnel Tate’s Cain Tunnel Eastern Harbour crossing Eastern Harbour crossing Cross Harbour Tunnel Cross Harbour Tunnel Western Harbour Crossing Western Harbour Crossing

Five BOT Tunnel Projects in HK Five BOT Tunnel Projects in HK

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Hong Kong BOT Tunnel Projects

Projects

Work commenced Time for completion (month) Actual time Operation start Fran- chise period (years) Expiry of franchise Cross Harbour Tunnel 9-1969 47 36 8-1972 30 9-1999 Eastern Cross Harbour Tunnel 8-1986 42 37.5 9-1989 30 8-2016 Tate’s Cairn Tunnel 7-1988 37 34 6-1991 30 7-2018 Western Harbour Crossing 8-1993 48 44 4-1997 30 8-2023 Route 3 (Country Park Section) 5-1995 38 36 5-1998 30 5-2025

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Cross Harbour Tunnel

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Cross Harbour Tunnel – launching tunnel units November 1971

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Cross Harbour Tunnel – placing tunnel units November 1971

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Cross Harbour Tunnel – portal construction

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Five BOT Tunnel Projects

CHT

TCT WHC EHC

R3CPS

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Highway Maintenance

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Highway maintenance : the quest for cost-effectiveness

  • Recent initiatives in enhancing cost-effectiveness in

highway maintenance – a PPP approach

  • utsourcing inspection and planning duties by

adopting performance indicators in remuneration

  • f contractors
  • integration: combining different nature of works

to one contract to achieve synergy and combining smaller contracts into bigger contracts to achieve economy of scale

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Highway maintenance : Contractor’s Role

Conventional PPP Role As a Works agent As an assets manager Scope of duty Carries out Works as ordered Planning, inspection, and programming Workload Depends on Works Orders issued Depends on road conditions Works Quality More reliant on Engineer’s supervision More self-supervised Payment Works based Based on performance achieved

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Conventional PPP Supervision/works inspection

  • Road condition inspection

& programming

  • Replaced by

audits Issue Works Orders

  • Reduced

Audit

  • Measurement
  • Replaced by

audits

Highway maintenance : Engineer’s Role

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Highway maintenance : No. of work order issued

0-3 3-6 6-9 9-12 12-15 15-18 18-21 21-24 24-27 27-Above

Price Range of Works Order ($ K)

PPP contract Conventional contract preceding trial contract

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SLIDE 29

The Partnership

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Government

  • Anticipates demand for the project with reference to needs
  • f the community and sustainable growth of society
  • Balances competing needs for resources
  • Sets priorities; promote project
  • Selects cost effective procurement strategy, including

considering if it is more cost effective for the private sector to provide the service (public sector comparator) -- in line with the big market small government aspiration

  • Ensures risks at acceptable levels
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SLIDE 31

Project-promoter

  • Business opportunities on a long-term

basis with a steady flow of income at a reasonable rate of return (commercial viability)

  • Business development opportunities
  • Risks taken are manageable
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The Community

  • Satisfactory service level
  • Projects to be affordable
  • Acceptable toll levels
  • Different interests be balanced
  • Transparent and accountable decision

process

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SLIDE 33

Government

G P C

Project Promoter Community

The Partnership - the Government, the Project Promoter and the Community

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SLIDE 34

Government

C G P

A Sustainable Business Partnership

Project Promoter Community

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SLIDE 35
  • PPP - a tripartite partnership, a

vehicle where the aspirations of the 3 parties may be satisfied

  • Private participation can take the

form of BOO, BOT projects, PPP approach in highway maintenance

  • r indeed many other possibilities
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SLIDE 36

THANK YOU