The government will design and build the cruise terminal and lease the facilities to a private operator while retaining ownership of the site and terminal. The operator will be granted a tenancy of about seven to 10 years. The first berth is expected to begin service in mid-2013 and the full-fledged terminal building will be completed in 2014-15.

The successful bidder will design, build and operate the berths and supporting facilities under the original development approach announced by the government in October 2006.

It was originally hoped that the first berth would begin operating in February 2012. But the government said in July that the terminal would not be ready until spring 2013 at the earliest when it invited fresh bids after the two consortiums vying for the project were rejected for failing to meet government requirements.

Cruise operators generally supported the government's decision as retendering the project would further delay the project.

All major political parties urged the government to break down the HK$7.2 billion construction costs. Democratic party lawmaker Fred Li Wah-ming feared that the project would become 'a replica of Hong Kong Disneyland', which was unable to recoup the huge investment.

The government has also decided to scale back the 50,000 square metres of commercial, office and retail facilities in the terminal building to about 10,600 square metres.

Secretary for Commerce and Economic Development Rita Lau Ng Wai-lan said construction costs had surged significantly and it was difficult to predict future trends.

The May material indices for galvanised mild steel, sand and steel reinforcement increased by 60 per cent, 104 per cent and 137 per cent respectively since January last year.

'In view of the recent financial-market tsunami, this would add risk and uncertainties to cost and capital financing of the project,' Mrs Lau said. 'We will run the risk of further delay if we test the market again through another land tender.'

She said the alternative approach would enable the government to commission the first berth in 2013 with greater certainty.

A government source said the estimated construction cost of HK$7.2 billion was higher than the government's 2006 estimate of HK2.4 billion. 'But the original estimate did not cover commercial facilities which would be built by the operator under the original model.'

The source said there was no estimate on how long it would take to recoup the HK$7.2 billion construction cost.

'We are talking about the overall economic benefits of the project, not only the commercial returns.'

Mrs Lau said tourism was an important pillar of Hong Kong's economy and it would be in the city's interests to finance the project.

The government estimates that the cruise industry would bring economic benefits of about HK$2.5 billion and up to an extra 9,000 jobs a year from 2023.

Raymond So Wai-man, associate professor in finance at Chinese University, questioned how officials came up with the economic benefits.

'The government has to make it clear whether it is direct or derived benefits such as a rise in adjacent land value and employment opportunities,' he said.

Setting sail

About five years after the Kai Tak cruise terminal was first proposed, the government has finally decided to pay HK$7 billion to develop it by itself

Late 2003

Government announces plan to develop cruise terminal in southeast Kowloon

Nov 2005

Expressions of interest for temporary cruise terminal invited by government; six propsals received

Jun 2006

Government rejects six proposals

Oct 2006

Plans for permanent cruise terminal at Kai Tak announced

Nov 2007

Four-month tender exercise for cruise terminal launched; two bids received

Jul 2008

Both bids rejected by government

Sep 2008

Government announces it will develop cruise terminal

2012

Ocean Terminal's 50-year lease expires

Mid-2013

First berth at Kai Tak expected to be operational

The terminal in numbers

Estimated cost: HK$7.2b

Maximum projected annual economic benefit from cruise industry by 2023: HK$2.6b

Maximum projected additional jobs generated from cruise industry by 2023: 8,900

Fisrt berth operational: mid-2013

Cruise terminal building completed: 2014/15

Source: Planning Department