Requests for Non-Binding Expressions of Interest in the Development of the Kai Tak Multi-Purpose Sports Complex
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Requests for non-binding Expressions of Interest in the Development of the Kai Tak Multi-purpose Sports Complex - Report on submissions received Home Affairs Bureau April 2013 2 Contents Chapter Page Introduction 1 I Overview of responses 3 II Proposed scope of facilities to be provided 9 at the Kai Tak MPSC III Procurement and financing options 11 IV Timetable for the development of the Kai 26 Tak complex V Master planning and design 29 VI Scope for private sector investment in the 37 Kai Tak complex VII Ways to enhance commercial viability 39 VIII Other issues 42 IX Conclusion and way forward 45 2 Introduction On 18 January 2013, the Home Affairs Bureau (HAB) invited private sector companies and other stakeholders to submit non-binding expressions of interest (EOI) with regard to the development of the Multi-purpose Sports Complex (MPSC) at Kai Tak. The purpose of the invitation was to show the Government’s interest in working closely with the private sector in developing the complex, and to obtain feedback on issues such as the mode of procurement and financing of the project; the scope for private sector investment in the project and the form that such investment might take; the scope for public and private sector collaboration in the design, construction and operation of the complex; and ways to maximise the commercial viability of the project. The invitation to submit EOI was posted on the MPSC website: www.hab.gov.hk/mpsc. 2. By the deadline for submissions, HAB had received 42 EOI from the following sectors – Sector Number of Submissions Architects 6 Banks and investment companies 4 Construction companies 5 Consulting firms 2 Individuals 1 Professional firms 1 Project management companies 6 Sports/entertainment companies 3 Sports organisations 14 3. Despite the short time allowed for the preparation of EOI and the strict limits placed on content and length, many of the submissions were of a 2 high quality and offered helpful insights into the key aspects of the project. Almost all the submissions highlighted the importance and relevance of the project to the future development of sport in Hong Kong, and many also commented on the high-profile role that the sports complex would play in defining the character of Kai Tak and the rejuvenation of Kowloon East. 4. We greatly appreciate the efforts of all respondents to the EOI invitation, and we are encouraged by the number and the quality of the submissions, which we believe indicate a general enthusiasm for the Kai Tak MPSC project, as well as a positive commentary on its viability. 5. The majority of the respondents recommended that the facilities at the complex should be multi-functional and allow the complex to host as many types of event as possible. Most respondents also advised that the Government should engage stakeholders at an early stage in the planning of the project. Several respondents emphasised the importance of the Government setting up a dedicated team to ensure the timely implementation of the project. 6. We have read and noted the content of all 42 submissions. Some of these contained relatively more detailed information on planning, procurement, finance and operations related issues. This report does not aim to cover all the information provided, but rather is intended to be a summary and is therefore based largely on the information provided in the more detailed submissions. 2 3 Chapter I - Overview of Responses In the invitation for Expressions of Interest we specifically asked respondents to provide feedback on three areas – The scope of facilities to be provided at the Kai Tak complex. Options for the procurement and financing of the complex. The timetable for the development of the complex. 2. We also invited comments on other areas, in particular – The design and layout of the facilities for the complex. The scope for private sector investment in the project and the form that this might take. A business plan for the complex, including ways to enhance its commercial viability. 3. This chapter provides a summary of the main points that respondents made when commenting on these areas. More detailed accounts of the feedback that we received are provided in the subsequent chapters. 1) Scope of facilities 4. Respondents generally supported the scope of facilities described in the EOI invitation (see the Appendix attached), noting that such facilities would be expected in a world-class sports park capable of hosting major sporting and other events. Sports organisations suggested that a range of additional indoor and outdoor facilities be provided at the complex. 5. It was suggested that most of the 10,000 m² that were to be set aside for office space be reserved for “national sports associations” (NSAs), as they would be frequent users of the venues at the complex, and housing them under one roof would allow for management and operational convenience. 2) Procurement and financing options 6. With regard to procurement, most respondents felt that the 3 4 Government should take advantage of the experience and skills of the private sector in the financing and operation of such a complex. It was noted that a Private Sector Participation (PSP) approach could maximise the efficiency of the contract from design through operation and maintenance and allow for a pricing policy that strikes a fair balance between profitability and the need to provide users with a high quality service. 7. It was also observed that a PSP approach would allow for the risks associated with the project to be properly shared between the private sector partner and the public sector, with these being spelled out during the preparatory phases of the contract. A balanced sharing of risks would ensure that public funds are put to the best possible use. 8. As regards the form of PSP contract to be adopted, respondents commented that a Design-Build-Finance-Maintain-Operate (DBFMO) model could achieve a high level of value for money in the long term. Such an approach would optimise the design and quality of the complex so as to meet users’ needs and minimise maintenance and other costs over the whole life of the project. 9. A Joint Venture (JV) model was also discussed, whereby the Government would invite bids to design, build and operate the complex. After tender, the Government and the selected bidder would each establish holding companies to invest in a JV project company to develop and operate the complex. Development risk could be passed to the private sector to deliver the project on time and within a capped budget. 10. Some respondents commented on the “traditional” PWP approach to project procurement, noting that this could deliver a certain outcome for the Government in terms of basic design and construction. A PWP approach adopting a design & build contract would help ensure that the risk of design development did not rest on the Government. 11. Most respondents who commented on the financing issue considered that it would be viable to involve a degree of private sector participation in financing the project, although funding the project solely from government funds was seen as the cheapest financing option. Long-term, locked-in, low-interest government borrowing would be the second cheapest way to fund 4 5 the project. Respondents generally felt that private finance, even in a low-interest environment would be more expensive. 12. It was noted that private project financing could be viable under an arrangement whereby a consortium (or “special purpose vehicle” (SPV)) was established to design, build, finance, maintain and operate the complex under a DBFMO model. The Government could wait until construction was completed before injecting money into the project. This would create a powerful incentive for the private sector partner to deliver the project on time and within budget, although as project finance lenders generally preferred not to be exposed to market or demand-based risks, upon completion of construction the Government would need to start making regular availability payments that would cover debt servicing (principal repayment and interest) and an agreed Internal Rate of Return (IRR) on equity to the SPV shareholders. 13. It was observed that PSP arrangements could involve a mixture of public and private capital, with public funding coming from sources such as government infrastructure loan financing to offset a portion of project costs, government investment entities providing equity capital and a government payment at construction completion, with the balance of the project costs provided via long-term financing to provide for operational risk transfer. 14. In order to create an incentive for the private sector partner to deliver a high quality service throughout the life of the project, it was suggested that the availability payment under the DBFMO model be proportional to the performance of the operator in terms of event organisation and venue operation and maintenance. This would help maintain an appropriate level of risk transfer throughout the life of the contract. 3) Timetable 15. A number of possible timetables for the development of the Kai Tak complex were suggested. These ranged from the view that a 2019-20 target date for the start of operation would be challenging, to a comment that private sector involvement the complex might be opened before late 2018. Respondents added that – 5 6 Developers could accommodate aggressive timelines provided that the project is well prepared before the procurement is launched, with key risk allocation being well defined at the start. Tried and tested fast-track construction methods involving industrialised components and the overlapping of the design process with the construction process would be appropriate subject to the overall master plan for the complex having been finalised and an operator being in place.