Are Hongkongers getting the best deal out of Kai Tak Sports Park?

Albert Cheng says the generous terms in the contract awarded to a New World subsidiary to design, build and run the Kai Tak Sports Park raises questions about whether the Hong Kong public could have got a better deal

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A view of the construction works at Kai Tak Sports Park in June last year. Photo: Roy Issa

Albert Cheng

Ir.

Published: 8:04pm, 10 Jan 2019Updated: 8:04pm, 10 Jan 2019

Before the end of 2018, the Hong Kong government announced that a subsidiary of local property developer New World Development has won the 25-year contract to design, build and run the 28-hectare Kai Tak Sports Park.

According to the terms of the contract, the government will give HK$30 billion (US$3.8 billion) for the construction of the park. Kai Tak Sports Park Limited, a subsidiary of New World Development and NWS Holdings, will cover the operating expenses. It also gets to keep the revenues, but must pay the government 3 per cent of gross income and an additional HK$1.72 billion over the 25 years of the contract.

This kind of “design, build and operate” project is not without precedent. And New World itself is currently running other facilities and venues, including the Hong Kong Convention and Exhibition Centre in Wan Chai, Youth Square in Chai Wan, and the Avenue of Stars in Tsim Sha Tsui. According to Home Affairs Bureau figures, the operating expenses of Youth Square largely exceed its income. It recorded an annual loss of between HK$30 million and HK$40 million from 2014 to 2017.

The “design, build and operate” model appears to have overtaken the old “build, operate and transfer” model, under which administration of the property is returned to the government after a certain period, such as 20 or 30 years. The “build, operate and transfer” model is commonly used in projects around the world. The purpose is to employ private capital, knowledge and skills for public use.

Two young performers rehearse for a performance of children’s Cantonese opera in Youth Square, Chai Wan, last year. Youth Square has been running at a loss for years. Photo: Martin Chan

In another common type of public-private partnership, the government retains ownership of the property, while the private company is granted a contract to operate the facilities. In this model, the operator earns 5-10 per cent of the revenues, with the remaining going to the government. Some of Hong Kong’s public car parks and road tunnels are run this way.

In the case of the Kai Tak project, the contract allows New World to only pay the operating expenses, HK$1.72 billion, and 3 per cent of gross income. The park will have about 646,000 sq ft of retail and dining areas, in addition to bowling and health and wellness centres. This will generate considerable profits for the New World group.