Tenth Hong Kong container terminal, costing HK$100b, may not be financially viable, consultants say

Prediction of reduced cargo growth from 2020 means HK$100b container project is unlikely to be financially viable, consultants' report says

PUBLISHED : Monday, 02 December, 2013, 5:23am
UPDATED : Monday, 02 December, 2013, 5:24am

A tenth Hong Kong container terminal costing close to HK$100 billion is unlikely to be financially viable, according to a consultancy report due out next month.

With only modest growth expected in the cargo business for the decade from 2020, it says the government should make better use of the 100,000 hectares of land at the Kwai Chung Container Terminal in Tsing Yi in the short-term.

The government first considered building the proposed new terminal, known as CT10, about 10 years ago. But that was when the cargo business was growing by an average of about 5 per cent annually.

With growth expected to drop to between 1 and 3 per cent from 2020, and with the final bill for CT10 likely to be in the "high tens [of billions]", the project may not be able to attract private investors, two people familiar with the report said.

"It usually takes 10 to 12 per cent in financial returns to justify a private investment," one of the sources said.

"Even for a government project, we are talking about an economical return of some 4 per cent. I am not sure if CT10 would satisfy either of these."

The hefty cost comes from placing it next to the existing nine terminals. That would mean reclamation and the relocation of five oil depots, which would in turn require a very costly process to decontaminate the site, dump the polluted mud and assess its impact on the environment.

Meanwhile, industry chiefs say that making better use of existing facilities could boost port capacity by 15 per cent.

They claim this could be done by spending just 40 per cent of the cost of the new terminal.

Alan Lee, chairman of the Container Terminal Operators Association, said the organisation supported building a new terminal only if there was sufficient demand.

"CT10 is not the most pressing matter on our minds now. We are looking at ways to enhance our competitiveness within the next two years," Lee said.

"A lack of backup land is seriously slowing down our handling of cargos and the turnaround time for vessels and barges. If this goes on, more carriers will leave us for Shenzhen."

The government commissioned the consultants to project growth from 2020 to 2030 and find the best way forward.

It is understood they have proposed various options for CT10, such as building five, six or eight berths.

They also explored the possibility of moving it further west to avoid moving the oil depots.

But with major carriers joining hands in mega-alliances and the growing use of mega-vessels, the demand was for terminals to be interconnected. A detached CT10 would minimise its interaction with other facilities.

Last year about 60 per cent of the city's container business came from trans-shipments - cargo moved from one port to another via Hong Kong.

But port authorities in Shenzhen and other cities are lobbying hard for Beijing to open its domestic sea trade to foreign carriers.

If they succeed, Hong Kong will be replaced as the region's primary trans-shipment hub.