Hong Kong fly buy
With increasing public concern over the government's massive budget deficit - estimated to be as much as $78 billion for the year to March - something has to be done to reduce the funding gap. But just what are the options when the economy remains mired in a six-year downturn that has only recently begun to show tentative signs of recovery?
One suggestion is to sell off the territory's 'crown jewels' in a massive privatisation exercise that would raise $112 billion over the next five years. The sale of shares in Hong Kong International Airport to private investors would be a cornerstone of the plan, with the government looking to recoup as much as possible of the $37 billion it gave to the Airport Authority to get the project off the ground. As most new stock exchange listings sell between 20 to 30 per cent of their shares, the implication is that the airport may be valued at more than $100 billion when it goes on the market at the end of next year or, more likely, in 2005.
It would be one of the biggest privatisation projects ever undertaken in Hong Kong, dwarfing the sale of 20 per cent of Mass Transit Railway Corporation's shares to the public in 2000, in which the rail operator was valued at close to $50 billion.
The government says its plans to privatise public assets have more to do with creating a smaller, more efficient government, than raising funds to cover its operating deficit. So far, the government has not outlined plans to privatise public assets that contribute to the deficit, such as water and sewage provision and the provision of public housing, instead focusing on the airport, which is profitable. Senior government sources have told the South China Morning Post that plans to privatise the Airport Authority, which runs Chek Lap Kok, have not been finalised, but that consultants have been appointed to draw up a strategy for the sale. It has also begun private consultations with key public stakeholders. 'It's by no means a done deal that we will sell shares in the airport,' the sources said. 'We are now embarking on public consultations to see if everyone agrees that this is the best thing to do.'
While it was the government's intention to realise its investment in the airport, the sources said there were other ways to do this apart from a share sale: 'We can securitise airport revenues. We can issue bonds.' But they added: 'We don't think any of those ways really allows the public to be fully involved as stakeholders in the Airport Authority as a sale of shares on the stock market does.'
Consultants had been appointed to work on proposals for a privatisation, they said. 'These consultants are different than the ones that the Airport Authority has appointed itself. We will be focusing on the issues of whether or not the privatisation should be done and how else we can allow the public to have a greater stake in the airport.'
One of the consultants' main tasks will be to help create a regulatory structure for a privatised Airport Authority that will reflect Chek Lap Kok's position as the monopoly provider of airport services in Hong Kong. This would help protect travellers and airlines from being charged unreasonable prices for using the airport, which would be detrimental to Hong Kong's position as a premier aviation hub. At the same time, however, the government sources said the airport would have to be given 'enough commercial flexibility' to make privatisation worthwhile. 'It is difficult to say where to draw the line, which is why we need the expertise of consultants,' they said.
The consultants will also be responsible for devising a strategy to bring the Legislative Council on-side for a sale. 'We will need to get Legco's approval on a plan to privatise the airport. Part of the consultants' work will be to come up with draft versions of a bill to be put to Legco,' the sources said. However, they denied that the appointment of consultants meant that Chek Lap Kok's privatisation was a foregone conclusion. 'Timing is an issue. Once we decide to go forward, there will be a limited window of time when we can make it successful. So we must lay the groundwork now, and if the public decides to let us go ahead, we will be ready,' they said, adding that there was not yet a definite time schedule.
'That the Legco elections are taking place late next summer is a complication, which goes back to timing. Do we want the airport privatisation to be mixed in with the other issues that will be raised during the run-up to the elections? Do we wait until afterwards to introduce the issue to Legco? Another complication is that it could take a long time for Legco to consider the bill, so we would like to get started as soon as possible.'
They denied it was primarily a cash grab to help deal with the looming deficit, but admitted recovery of the government's outlay would be welcome. 'Wouldn't it be nice to get some of the government's $37 billion investment in the airport back, so it could be used for other ways to improve Hong Kong,' the sources said. The move towards creating a privatised Chek Lap Kok would have other benefits, they added, including building a new accounting framework to finally clarify the issue of whether airlines were being charged market rates for using the airport. Airlines have long argued that the airport is one of the most expensive in the region, a charge that government and the authority deny.
During the past year, the airport has aggressively expanded its non-aviation, commercial activities, such as restaurants and retail, partly to diversify its revenue and to create a better experience for travellers. For the year to March, this revenue accounted for about 32 per cent of the authority's $5.4 billion in total turnover. This will grow as the airport's new terminal and 57-hectare SkyCity developments are completed. By comparison, aviation activities, including landing and parking charges for airlines, contributed 45 per cent of turnover.
The sources said the government was considering allowing the authority to move away from its present 'single-till' accounting system towards a 'two-till' system. While the single-till system combines all revenue and costs into one account, a two-till system would separate the aviation and commercial activities into two separate accounts. They said this was being implemented in other privatised airports around the world, including in Australia. 'This will give a better account of how successful each activity - aviation versus commercial - really is.'
