To avoid project delays, the cruise terminal at Kai Tak will be entirely financed by the government instead of by a private developer, the government announced yesterday.

The estimated cost of the project, of which the first berth would be operational with temporary facilities in 2013, has increased from HK$4 billion to HK$7.2 billion due to rising construction costs.

The government's decision to use taxpayer dollars to fund the project means officials have abandoned their plan announced in July to re-tender the project after the only two bids received were rejected for failing to meet requirements.

According to the July plan, the winning bidder would have been reimbursed the cost of the site formation, which is expected to cost taxpayers HK$2 billion.

Secretary for Commerce and Economic Development Rita Lau said the government re-assessed the bidding interest after July's announcement and concluded that the capital financing of the project is facing uncertainties because of inflation and the recent financial market woes.

"We will run the risk of further delays if we test the market again through another land tender, because we would have to wait for the outcome of the re-tender before we could proceed with an alternative approach. The government has thus decided to develop the cruise terminal," she said.

A government source added that the government is not interfering in the market, saying the tourism sector has demanded the government fund the project, and some overseas countries have taken a similar approach.

The government will lease the first berth to an operator for between seven and 10 years after its completion in 2013.

A second berth for smaller vessels will be put into operation by 2015 at the earliest.

The leasing work for the cruise terminal will commence in the 2011-12 fiscal year.

The government will invite open tender for two construction contracts in parallel, with the first one costing HK$2.4 billion for site formation involving the construction of berthing facilities, and the second one costing HK$4.8 billion for construction of the cruise terminal building.

The government explained in a paper submitted to the Legislative Council that construction costs have surged rapidly, and the costs of galvanized steel, sand and steel reinforcements increased by between 25 and 41 percent in the first five months of this year.

A government source said the cost of building facilities in the commercial area of the site was not calculated in the previous cost estimate.

The commercial area of the site will be reduced from a maximum of 50,000 sq m to about 10,600 sq m, as the government needs not allocate land for commercial uses to lure bidders.

The government also plans to set aside contingency funds of between 10 and 15 percent of the terminal's new cost estimate.

The government estimated that the economic benefits brought by the cruise industry may range from HK$1.5 billion to HK$2.6 billion per annum, and the additional jobs generated by 2023 will be between 5,300 and 8,900.

The project funding will seek approval by the Legislative Council in early 2011.

'Huge potential'

The travel industry, on the whole, is quite positive.

In the opinion of one academic, the cost of the terminal project isn't too high, but whether the government can yield its estimated economic benefits is arguable.

Susanna Lau, a member of the Advisory Committee on Cruise Industry and general manager of Hong Thai Travel Agency, said the cruise terminal would have a positive impact on the Hong Kong travel industry. Take inbound travel, for example. Internal cruise journeys will bring a great deal of visitors to Hong Kong and help boost the local economy. For outbound cruise passengers, they will save a lot of time and money, as they do not need to fly to a foreign country to board the cruise. "In Hong Kong, cruise journeys have very huge potential, and so the cruise terminal shall be built as soon as possible," she said.

Fellow committee member Lanny Leung, who is also chief executive officer of Wing On Travel, said the government's decision to fund the building cost of a cruise terminal removes a lot of uncertainties to facilitate its timely completion. In the long run, Hong Kong needs a decent cruise terminal to attract more cruise passengers to come to Hong Kong, as their average spending is estimated to be nearly HK$12,000.

The Travel Industry Council fully supports the government's decision. Joseph Tung, its executive director, said: "Hong Kong can no longer wait, as neighboring countries such as Singapore and Thailand, as well as Shanghai and Shenzhen, are also building cruise terminals".

Tung said it is a good that the government is financing the construction. "As the government is deeply involved, a firm completion date is guaranteed," he said. "Many cruise companies have told me that without a proper cruise terminal in Hong Kong, they always find it hard to affirm the cruise schedules."

Dario Rustico, sales and marketing director of Costa's Asia-Pacific operations, welcomed the move, noting that cruises are getting more and more popular in Hong Kong.

Raymond So, an associate professor of business at the Chinese University, said the cruise terminal will benefit Hong Kong's long-term economic development, but it is arguable if the economic benefits are that high. "As I calculate, HK$2.5 billion in 2013 is only tantamount to HK$1.1 billion today. Again, the benefits will not be very high, as they are mostly derived from job creations," he said.

(HK Edition 10/01/2008 page1)