Opinion | Financial viability of Hong Kong's third runway still shrouded in mist

Two weeks ago, I expressed astonishment in this column at the Hong Kong budget's lack of explanation of financing for the third runway and the rationale behind a desalination plant. So, now that we have been told that the taxpayer will not pay the HK$141 billion-plus required for the runway, and that the project will go ahead without the need for legislative process, thanks to the nodding heads of Executive Council appointees, are we any clearer?

Let us look at the numbers. First, there is to be a levy on passengers. Given that current passengers are already paying for the existing airport, the logic of demanding they pay for future passengers is contrary to the norms of capitalism. If it is such a financially viable project, why can it not attract the capital required, which would be rewarded by the traffic flowing from the expansion? In any case, a HK$180 charge - assuming it is applied to departing passengers - will raise at best only about HK$5 billion a year or HK$40 billion by the time of completion in eight years.

Next is ending dividends to the government, now running at HK$4 billion a year. Retention of some earnings now to enhance future earnings is reasonable. But to deprive the public purse of any return on past investment yet again shows how unfit the bureaucracy is to safeguard the public interest. John Tsang Chun-wah is again indulging his preference for rewarding vested commercial interests and infrastructure boondoggles demanded by the political leadership.

That leaves nearly 50 per cent of the project cost to be met by borrowing. With interest rates at their current levels, this is indeed a great time to borrow. But can the Airport Authority really finance these billions without recourse to government guarantee? That is particularly the case, given that past experience with such government-driven projects suggests cost overruns will add another 25 per cent, for a total closer to HK$200 billion, of which half would be debt.

If the Airport Authority had been, as long promised, turned into a publicly owned but listed corporation, it would have had to come up with a commercial plan that would convince outside shareholders and bond investors that it is worthy of scrutiny. But the authority and the government know how dangerous that would be, given other factors.

It is of course entirely reasonable (other than on environmental grounds) for Hong Kong to want to retain its international position and compete with nearby airports in Macau, Shenzhen, Guangzhou and Zhuhai. But it is doing so with one hand tied behind its back - mainland air traffic issues. These are already costing Hong Kong - and airlines using it - dearly in terms of flight path and frequency restrictions. These should have been resolved well before agreeing to proceed with the runway.

It is amazing how a government that forever talks about Pearl River Delta cooperation has made zero progress on this issue. Indeed, it has made Hong Kong's situation worse, with a pricing system for aircraft movements which - seemingly for political reasons - favours short-haul, small-capacity aircraft over large and long-haul ones. The Airport Authority has actually been making poor use of its monopoly position in order to develop links to secondary mainland cities.