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立法會 Legislative Council LC Paper No. CB(1)530/06-07(04) Ref : CB1/PL/ES Panel on Economic Services Meeting on 21 December 2006 Background Brief on Hong Kong Disneyland Purpose This paper provides information on the background of Hong Kong Disneyland (HKD) project and the operation of HKD in the first year of its commissioning, as well as summarizes the major concerns and views of Members on related issues. Background 2. In December 1999, the Government entered into an agreement with The Walt Disney Company (WD) to build HKD (Phase 1) at Penny's Bay. A joint venture company, the Hongkong International Theme Parks Limited (HKITP), was set up for this purpose. 3. According to the Administration, HKD would generate huge economic benefits for the Hong Kong economy, estimated to reach $148 billion over 40 years. The project would also create many job opportunities during construction and operation stages. 4. HKD was opened on 12 September 2005. The projected annual attendance of the park during the initial commissioning was 5.6 million. 5. Details of the financing arrangements for HKD and subsequent phases of development are in Appendix I. Governance structure of Hongkong International Theme Park Limited 6. While the Hong Kong Disneyland Management Limited is responsible for the day-to-day operation of the theme park, the Board of HKITP exercises a -2- supervisory role. The Board of HKITP originally has nine members. Five of them are appointed by the Government. They are the Financial Secretary, Secretary for Economic Development and Labour, Secretary for Financial Services and the Treasury, Secretary for the Environment, Transport and Works and Commissioner for Tourism. The other four members are appointed by WD. The Government and DC may, if they so agree, appoint up to two independent non-executive directors to the Board. The Administration made the appointment of two independent non-executive members to the Board on 1 August 2006(1). Concerns expressed by Members 7. At the time when HKD was given green light to proceed in 1999, there were quite a number of issues to be followed up. The Panel on Economic Services (ES Panel) was given the responsibility to monitor the progress of development of HKD and to deal with these issues. Some new issues, such as the decommissioning at Cheoy Lee Shipyard, cropped up at a later stage and these issues, basically environmental ones, are also followed up by the Panel on Environmental Affairs. The Panel on Transport has reviewed the traffic and transport arrangements for HKD. The subcommittee formed under the Panel on Transport also monitored the development and implementation of the Disneyland Resort Line (DRL). In gist, the major issues discussed by the Panels are as follows: (a) shareholding and governance of the project company, HKITP; (b) Government’s investment in the project company and its share conversion timetable; (c) Government’s investment in the associated and supporting infrastructure and government, institution and community facilities; (d) economic benefits of HKD; (e) environmental impacts of HKD and decommissioning of Cheoy Lee Shipyard; (f) employment opportunities for professionals and low-education workers during construction and operation stages; (g) occupational safety and health issues for the crew members of (1) Payson CHA Mou-sing of HKR International, and Mr Philip CHEN Na-lok of Cathay Pacific were appointed as independent non-executive members to the Board of HKITP for a two-year term. -3- HKD; (h) traffic and transport arrangements for HKD; (i) fireworks display at HKD; (j) operational readiness of HKD and contingency planning; (k) expansion plan and Phase 2 development of HKD as well as the related financing and financial arrangements; (l) competition from other theme park developments outside Hong Kong; and (m) Government's monitoring of the performance of HKD including the park's financial performance and investment return. 8. Since the opening of HKD in September 2005, Members have raised a number of questions at Council meetings on related issues, among others, operation and performance of the park, public transport services for visitors, employment matters, as well as financial and governance arrangements. Details are hyperlinked in Appendix II. 9. Members of ES Panel were briefed on the initial operation of HKD at the meeting on 28 November 2005. Concerns including unfair treatment to frontline staff of HKD, as well as attendance and financial performance of the park and hence investment return to the Government were raised. There were suggestions for HKITP to disclose the daily attendance figures of the park in order to enhance its transparency, and to strengthen the marketing and promotion strategies targeting at different groups of visitors. According to HKD, it had been a policy of WD not to disclose attendance number to the public, not merely in Hong Kong but also other theme parks around the world. WD considered that park attendance number was commercially sensitive information and it was easy to arrive at a wrong interpretation of park performance out of a short period or a single day attendance. As a listed company, WD would disclose the performance of its theme parks in its annual report. 10. ES Panel discussed with the Administration and the management of HKD at the meeting on 27 February 2006 about the operation of HKD during the Chinese New Year period of 2006, in particular the incident happened during the Golden Week where guests were not admitted after arrival at the park and the follow-up and improvement measures to avoid recurrence of similar incident. Members expressed concern about negative impact of the incident on HKD's image and Hong Kong's tourism industry, and urged HKITP to make improvements including reviewing the ticketing and guest entry -4- arrangements and enhance crowd management during peak seasons. They also called on the Administration to strengthen its participation in the management of HKD. Latest development 11. HKD celebrated its first anniversary in September 2006. However, announcement made by the management that the visitor numbers in the first year of operation were over five million has aroused concern about the park's performance falling short of the projected target of 5.6 million visitors. While HKD re-iterates its commitment to stepping up marketing and promotional campaigns for the park, there has been call for the park management to disclose more information on the park's financial performance including visitor numbers and their composition, as well as revenue. The public and some Members also consider it necessary for the Administration, being the majority shareholder of the park, to strengthen its monitoring of HKD's operation in protecting the interests of the investment made on the park. 12. HKD launched its annual pass programme in late September 2006 in an attempt to attract more visitors to the park. The Administration and the management of HKD will update members on the operation and performance of HKD at the coming meeting of ES Panel on 21 December 2006. References 13. A list of the relevant papers with their hyperlinks is in Appendix II. Council Business Division 1 Legislative Council Secretariat 20 December 2006 Appendix I Financing arrangements and subsequent phases of development of Hong Kong Disneyland Financing In 1999, the then estimated total project cost to Hongkong International Theme Parks Limited (HKITP) of developing Hong Kong Disneyland (HKD) Phase 1 was $14.1 billion in money-of-the-day (MOD) prices. This is in addition to the cost of reclaiming the land for Phase 1 of the project, which was estimated at $4 billion in MOD prices. The Government also needs to provide land, associated infrastructure and government, institution and community facilities to support the development of HKD. Details are set out below. Land Grant 2. Under the Project Agreement reached between the Government and the Walt Disneyland Company (WD), a site of about 126 hectares at Penny's Bay, Lantau Island (the "Phase 1 Site") should be granted by private treaty to HKITP for 50 years, with a right to renew for a further 50 years, subject to an annual rent of 3% rateable value. The land premium is $4 billion, being the estimated pro rata cost of the reclamation and site formation. 3. WD's forecast of the financial performance of HKD (the "Base Case" note 1) 1 showed that the project could cover the cash cost of building and operating the theme park and related facilities, but could not cover the cost of the land. Given the very substantial economic and other benefits that HKD would bring to Hong Kong, the Government agreed not to demand cash up front for the land premium, subject to certain conditions, the main ones being - (a) the full premium would be paid in subordinated shares which would convert to ordinary shares progressively during the life of the project to the extent that operating performance exceeded the Base Case. In this way the Government would capture its fair share of the project's upside potential; (b) WD would agree to take a significant initial equity stake and retain most of it for the life of the project. In this way the Government would ensure the sustained commitment to the project; and note 1 The base case is based on several assumptions, including: (a) The park opens in 2005 (b) The park's attendance in its first year of operation is estimated at 5.2 million (c) The park gradually reaches full annual capacity of 10 million after 15 years -2- (c) the Government would hold a majority stake initially to protect its interest, but with the ability to sell down subsequently to third party investors. 4. In order to ensure that HKD would remain attractive as a commercial venture to existing and potential third party investors, the subordinated shares would be converted in a gradual manner.

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