Locked in limbo

PUBLISHED : Wednesday, 10 May, 2006, 12:00am
UPDATED : Wednesday, 10 May, 2006, 12:00am

It was like a mania, three years ago, when the government first attempted to outsource the building and operation of a sports centre in Kwun Tong and an ice rink and bowling alley in Tseung Kwan O to private firms. The pilot scheme, under the then new public-private partnership (PPP) system, received a raft of responses from the private sector, with dozens of companies attending government-organised briefings to see if they could share in the concept's business opportunities.

Officials highly praised the new approach, in which public works and services are paid for and operated by private companies under government control. Such a method, they said, could save money and improve service to the public at a time when the government faced a severe budget deficit.

The Efficiency Unit, the government co-ordinator of the initiative, drafted guidelines on how the outsourcing of social enterprises should be conducted. Two study trips to Australia and England were taken in 2004 and 2005, to see how the scheme operated in water services, sewage plants, sports facilities and fire services. Dozens of seminars and consultancy studies were also conducted to examine the possibility of privatising different government projects. At one time, schools and hospitals were thought to be included in a range of public services opened to private investment.

But a recent check has found that none of the nine projects proposed to adopt the new model have been launched. In fact, they have either been dropped, suspended for further review, or are still under study.

For example, the two sports facilities in East Kowloon, worth $2.5 billion in total, generated a number of proposals from the private sector, but none seemed feasible to the government.

'These two schemes are now shelved,' said a senior cultural official, who declined to be named. 'We have now put them aside.'

The official said the entrance fee was a key problem in outsourcing sports facilities to the private sector. 'If you charge $25 per person per entrance to the swimming pool, the operator will not be making money. But nobody will come if you charge $50,' the official said. 'So, what they proposed was to build a commercial complex on top of the government facilities, which could be controversial, as it would be seen as a property project in disguise.'

The plan to privatise and redevelop the city's biggest water-treatment works at Sha Tin, a project worth $6 billion, has been stalled for two years amid strong opposition from staff unions worried that jobs would be affected. A government source said the scheme would move ahead, but at a slow pace, with a consultancy to be hired this summer to draft a contract for outsourcing the service.

Two projects were dropped and are to be handled by the government again, because of the complexity and time involved in privatising.

Authorities last week announced applications for $1.8 billion from the Legislative Council for the first phase of redevelopment of the Prince of Wales Hospital, with the works to be completed in 2010. And the Correctional Services Department will go ahead with its plan to redevelop the prison in Lowu with government funds, to ease overcrowding among inmates.

The rest of the projects, such as the outsourcing of funeral services, the upgrade of the Pillar Point sewage-treatment plant and an expansion of the prison in Chi Ma Wan, are still at the drawing board.

The biggest PPP project, the cultural district in West Kowloon, is now under review by three different independent panels. The government dropped the original plan to grant the 40-hectare site to a single developer to build and operate for 30 years, after strong opposition from lawmakers and non-government organisations amid worries that there could be collusion between government and property firms.

Anthony Cheung Bing-leung, an Executive Councillor and professor of public administration at City University, said some private firms would view these social enterprises as less attractive than other business opportunities that could reap quick profits.

'Apparently, this PPP model is not as simple as we conceived. There were a lot of problems during interface and transition from public to private operation,' he said. 'These may be seen as obstacles for investors to come forward. And there are other business alternatives around.'

Dr Paul Ho Hok-keung, chairman of the quantity surveying division within the Hong Kong Institute of Surveyors and an expert on the privatisation of public services, said the PPP model was still immature in Hong Kong.

'The progress is slow and it is disappointing,' he said. 'In fact, the government does not need to save money so urgently these days, since we are enjoying a budget surplus.'

Dr Ho, who is also the associate head of City University's building science and technology division, said the government needed to better establish its regulatory framework before it pushed privatisation schemes forward.

'In England, over 600 projects have been launched under PPP, and there is legislation regulating these schemes,' he said. 'If you do not have a good framework, legislators will be very sceptical about these plans.

'One key component of proper procedure is a mechanism to compare the total cost of using PPP against the traditional government financing method, to decide if it represents value for money. Otherwise, how can the government justify the need to privatise a social enterprise?'

Dr Ho said PPP was still a good concept for Hong Kong, even though the government was generally an efficient manager of services.

'The room to boost efficiency is not that much for some public services,' he said. 'But look at public health care - it costs the Hospital Authority $400 for an out-patient clinic visit, but private doctors only charge about $200.'

Steve Barclay, an assistant director of the Efficiency Unit, said prospects were still bright for privatisation.

'Even though it seems a bit slow in the past year, a lot of things are happening behind the scenes,' he said.

Mr Barclay said the unit would issue a second edition of PPP guidelines later this year to other government departments, while another official study trip to Canada would be arranged this summer to examine that country's privatisation initiatives with water services, corrective services, health services and law courts.

He admitted that the Leisure and Cultural Services Department had learned a tough lesson with the sports complex project.

'Under PPP, government services are outsourced to the private sector for a long period,' he said. 'One main requirement is that the service can generate revenue during the time that service is provided. If most of the revenue is generated upfront, how can you ensure that the services will be provided properly [over time]?'

Mr Barclay, who has witnessed the progress of the PPP model since it was floated in 2001, said that the private sector could generate better efficiency in the delivery of public services.

'The government is mostly efficient,' he said. 'But there is a lot of room for private companies to make money with their creativity.'

Mr Barclay said social enterprises were still attractive options for many private firms.

'There are a lot of institutional investors around, such as retirement funds, who are looking for long-term investments with a reasonable and stable return,' he said.