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
Transport Infrastructure Project Development
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
1) Conceptualization and strategic planning 2) Project definition and detailed planning Conventional Government Projects 3) Project initiation, funding and authorization 4) Design, construction and commissioning 5) Operation, management and maintenance PLANNING & ADMINISTRATION OF TRANSPORTATION INFRASTRCUTURE DEVELOPMENT
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
1) Conceptualization and strategic planning 2) Project definition and detailed planning PPP Projects - 3) Project initiation, funding and authorization BOO, BOT, etc . 4) Design, construction and commissioning 5) Operation, management and maintenance PLANNING & ADMINISTRATION OF TRANSPORTATION INFRASTRCUTURE DEVELOPMENT
Railway Development
Shenzhen Lo Wu LOW LMC Lok Ma Chau Sheung Shui SHS Shekou FAN SHEUNG SHUI to LOK MA CHAU SPUR LINE Tai Po Yuen Long LOP TWO TIS TAP YUL KSR LEO WEST RAIL (PHASE I) MOS HEO SIH UNI New Territories Ma On CHG Shan FOT TUM Tuen Mun Sha Tin RAC SHM Tsuen Wan SHT CIO TSW SKS TAW MA ON SHAN TWH STT TAW TWW RAILLINK KWH TSY KWF LAK WTS DIH MEF KOT LOF LCK CSW Tseung CHH SKM Kwan O MTR YAO SSP KOB TSEUNG KWAN O POA MKK PRE NAC NTK HAH EXTENSION PEB OLY MOK CLK KWT Kowloon LAT YMT TIK HUH TKO KOW JOR YAT WKPT ETS TST TKS FOH HOK NOP QUB SHW SWH TUC TAK PENNY'S BAY CEN TIH Tung Chung CAB HFC SKW ADM WAC TSIM SHA TSUI RAIL LINK EXTENSION Lantau Island Hong Kong Island CHW HONG KONG’s NEW RAILWAY PROJECTS - ROUTE MAP
Financial Assessment Flow Chart Transport Model Population Employment Patronage Financial Fare Revenue Model Fare Structure Commercial Revenue Total Revenue Property Profit Capital Cost Other Costs NPV - Pre-operating Cost Total Cost IRR - Land Cost Operating Costs Asset Replacement Costs Financial Assumptions - Operating Life - Terminal Value - Financing Cost, Interest - Price Fluctuation - Depreciation - Taxation, etc
Discounted Cash Flow Analysis n NPV = ∑ Ri – Ci (1+r) i i=1 income in the i th year Ri = expenditure in the i th year Ci = r = discount rate n = project life (years) When NPV = 0, r is the FIRR
Result of Financial Appraisal FIRR < Target FIRR or NPV < 0 Funding Gap (support) Funding Gap (support)
Typical Evaluation of a Railway Project Cost Net Income Asset Operatin Fare Business Propert Property Property Replacem g cost Income y excl. Profit incl. Year Capital cars ent 1 10 0 0 0 0 0 -10 0 -10 2 100 0 0 0 0 0 -100 0 -100 3 300 0 0 0 0 0 -300 0 -300 4 800 0 0 0 0 0 -800 0 -800 5 2,300 0 0 0 0 0 -2,300 0 -2,300 6 3,700 0 0 0 0 0 -3,700 0 -3,700 7 3,200 0 0 0 0 0 -3,200 0 -3,200 8 1,500 180 0 130 290 20 -1,500 830 -670 9 100 170 0 250 560 40 80 1,040 1,120 10 0 110 0 290 630 40 270 810 1,080 11 0 0 0 320 700 50 430 560 990 12 0 180 0 360 790 50 300 1,560 1,860 13 0 170 0 390 890 50 380 0 380 14 0 110 0 450 1,000 60 500 0 500 15 0 0 0 500 1,120 60 680 0 680 22 0 0 130 920 2,060 100 1,110 0 1,110 23 0 0 190 1,000 2,230 110 1,150 0 1,150 24 0 0 190 1,070 2,410 110 1,260 0 1,260 25 0 0 50 1,160 2,610 120 1,520 0 1,520 26 0 0 40 1,250 2,820 130 1,660 0 1,660 27 0 0 3,940 1,350 3,040 140 -2,110 0 -2,110 28 0 0 5,660 1,450 3,290 150 -3,670 0 -3,670 29 0 0 4,560 1,570 3,550 160 -2,420 0 -2,420 48 -2,590 0 0 6,630 15,530 580 12,070 0 12,070 FIRR = 7.0% 8.5% NPV @ -$2,073 8.5% = $7,289 $386 $2,350 $5,780 $13,113 $619 $2,104 $31 Capital Cost $12,930 m Interest $2,100 m $15,030 m
HKSAR Government Railway Corporation Project Agreement Railway Development Planning Proposal Project Definition Detailed Planning &Design Project Initiation Contract Administration Authorization Construction & Commissioning Interface Coordination COMPLETION PLANNING & IMPLEMENTATION OF RAILWAY PROJECTS
RDS 1994 Projects Work Work Cost Equity Property Complete Start ($M) injection Rights Project (MOD) ($M) (MOD) Airport Rwy 11-94 7-1998 35,100 23,700 Y Tseung 11-98 8-2002 16,000 0 Y Kwan O Line East Rail 11-00 12-04 26,700 8,000 Y Extensions 3-01 10-04 10-02 [2007] West Rail 9-98 12-03 46,400 29,000 0 Disneyland 7-02 [9-05] 2,000 798 0 Resort Line
Railway Development Strategy 2000 Shenzhen Lo Wu Lok Ma Sheung Shui Shekou Chau Northern Link Yuen Long Tai Po Express Rail Link Ma On Shan New Territories Sha Tin Port Rail Tuen Mun Line Tsuen Wan Shatin to Central Link Tseung Kwan O Kowloon Kowloon Southern Link Tung Chung North Island Line Hong Kong West Island Line Lantau Island Island / South Island Line
Highways Development
Five BOT Tunnel Projects in HK Five BOT Tunnel Projects in HK Route 3 Country Route 3 Country Park Section Park Section TING TING KAU KAU Tate’s Cain Tate’s Cain Tunnel Tunnel Western Western Harbour Harbour Crossing Crossing Eastern Eastern Harbour Harbour Cross Harbour Cross Harbour crossing crossing Tunnel Tunnel
Hong Kong BOT Tunnel Projects Work Time for Actual Operation Fran- Expiry of commenced completion time start chise franchise Projects (month) period (years) Cross Harbour 9-1969 47 36 8-1972 30 9-1999 Tunnel Eastern Cross 8-1986 42 37.5 9-1989 30 8-2016 Harbour Tunnel Tate’s Cairn 7-1988 37 34 6-1991 30 7-2018 Tunnel Western Harbour 8-1993 48 44 4-1997 30 8-2023 Crossing Route 3 (Country 5-1995 38 36 5-1998 30 5-2025 Park Section)
Cross Harbour Tunnel
Cross Harbour Tunnel – launching tunnel units November 1971
Cross Harbour Tunnel – placing tunnel units November 1971
Cross Harbour Tunnel – portal construction
EHC WHC Five BOT Tunnel Projects R3CPS CHT TCT
Highway Maintenance
Highway maintenance : the quest for cost-effectiveness • Recent initiatives in enhancing cost-effectiveness in highway maintenance – a PPP approach - outsourcing inspection and planning duties by adopting performance indicators in remuneration of 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
Highway maintenance : Contractor’s Role Conventional PPP Role As a Works agent As an assets manager Scope of Carries out Works as ordered Planning, inspection, and duty programming Workload Depends on Works Orders Depends on road conditions issued Works More reliant on Engineer’s More self-supervised Quality supervision Payment Works based Based on performance achieved
Highway maintenance : Engineer’s Role Conventional PPP � Road condition inspection Replaced by & programming audits � Issue Works Orders Reduced � � Supervision/works inspection � � Audit � Measurement Replaced by audits
Highway maintenance : No. of work order issued Conventional contract preceding trial contract PPP contract 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)
The Partnership
Government • Anticipates demand for the project with reference to needs of 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
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
The Community • Satisfactory service level • Projects to be affordable • Acceptable toll levels • Different interests be balanced • Transparent and accountable decision process
Government G Project Community Promoter C P The Partnership - the Government, the Project Promoter and the Community
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