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1216584v1 The Future of PPPs in Hong Kong Project Chambers Forum 28 May 2010 Presented by Sam Farrands.

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Presentation on theme: "1216584v1 The Future of PPPs in Hong Kong Project Chambers Forum 28 May 2010 Presented by Sam Farrands."— Presentation transcript:

1 v1 The Future of PPPs in Hong Kong Project Chambers Forum 28 May 2010 Presented by Sam Farrands

2 Outline of presentation Recap of PPPs Barriers to PPPs in Hong Kong The Future of PPPs in Hong Kong

3 Recap: What is a Public Private Partnership? ‘An arrangement where the public sector contracts to purchase quality services from the private sector on a long-term basis so as to take advantage of private sector management skills and disciplines by having private sector capital at risk’

4 Various forms of PPP = Different levels of PSP Concession BOT/BOOT Full Privatization Level of Private Sector Participation Service Contract Potential Benefit O & M Agreement

5 Key features of a Traditional PPP Private sector responsibility Provision of a service Emphasis on ‘outputs’ not ‘inputs’ No service → no payment Incentives and abatements Long term in nature

6 Why are PPPs so popular? Private sector innovation and know-how Optimal risk allocation Value for money Whole of life costing Better outcomes for public On-time and on-budget Reduced Government resources Increased efficiency

7 Some disadvantages Longer procurement period High transaction costs Reduced public sector employment Fear factor Loss of control New and different

8 Barriers in Hong Kong HK Government surplus Recurrent expenditure Government procurement policy Need for speed Global Financial Crisis

9 PPP track record in Hong Kong Not new in Hong Kong But only a few Tunnels AsiaWorld-Expo SkyCity Hotel

10 Project structure of AsiaWorld-Expo Airport Authority Hong Kong Government Public Sector Shareholder Private Sector Private Sector Shareholders Project Company D&B Contractor Operator Management & Operating Agreement Sublease Underlease Joint Venture Agreement D&B Contract Private Sector

11 A prevailing option - Design-Build-Operate (or DBO) DBO Developer Government ContractorOperator DBO Contract PERIODPAYMENTS ConstructionGovernment pays lump sum OperationGovernment pays unitary fee for availability Government pays incentives / abatements? Shareholders Shareholders Agreement EPC Contract O & M Agreement

12 Where could this model have been used?

13 PPP in context – The HK Harbourfront

14 PPP in context – HK Harbourfront Examples from Australia King Street Wharf Barangaroo PPP Models for HK Harbourfront

15 King Street Wharf

16 Procurement process: EOI Call for detailed proposals (1997) 9 parcels of land developed in 4 different phases same tender process can participate in some or all phases security deposit payable on submission of proposal Selection of preferred bidders Single developer consortium won the bid

17 Multiplex Australand Office of Marine Administration Developer Financiers Contractors Master Development Agreement Construction Contracts 50% Joint Venture or Shareholders’ Agreement Lease Tri-party Finance Agreements Licence ownership Project Structure Purchasers Operators e.g. hotels Sale Contracts e.g. office units Management Agreements contractual relationship

18 Development rights Price adjustment for development rights 10 to 99 year long term leases The Authority owns the promenade but the developer develops and maintains it Cafes along the waterfront internal - lease external – licence

19 Assessment criteria Development parcel options Concept plan Financial offer Financial feasibility Risk allocation and risk management strategy

20 Assessment criteria (cont.) Relevant experience to develop and operate similar project Technical and financial capability Organisation details Overall development programme Management plan

21 Barangaroo

22 Procurement Process EOI request for detailed proposals to shortlisted bidders selected 2 preferred bidders selected the successful bidder

23 Barangaroo – Stage 1 Development rights: Blocks 1 – 4; Public domain, e.g. promenade 99 year lease Authority to own and manage public domain

24 Barangaroo Special features: Climate Positive Development Program carbon neutral, water positive and generate zero waste Design competition Detailed marketing and promotion plan for the waterfront area

25 Issues for the Central Harbour Project Size of potential sites Sites not ready at the same time all sites can still be tendered out at the same time land to be released in phases Prime land to a single developer

26 Proposed models for the Central Harbour Hong Kong Government Private Developer Private Developer Private Developer Public Sector Shareholder Private Sector Shareholder Project Company ContractorsOperators Joint Venture Agreement Financiers Finance Agreements Construction Contracts Management & Operation Agreements Master Development Agreement ownership contractual relationship Management Agreement for public space

27 Proposed models to the Central Harbour Private Developer Private Developer Hong Kong Government Project Company Financiers Contractors Operators Public Space Management Agreement Master Development Agreement Management Agreements Construction Contracts Finance Agreements contractual relationship ownership

28 Harbourfront - in conclusion Many PPP options available Non-statutory authority recommended Statutory authority in the future

29 Conclusion PPPs offer many benefits Barriers can be overcome Design-Build-Operate Need further development Statutory Authorities at the forefront for now The harbour to lead the way

30 Questions


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