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Following is a question by the Hon Lui Ming-wah and a written reply by the Acting Secretary for Trade & Industry, Miss Yvonne Choi, in the Legislative Council today (Wednesday):
Question:
The Hong Kong Trade Development Council (TDC) signed a contract with a private developer in 1984 for the construction of the Hong Kong Convention and Exhibition Centre (HKCEC) and supporting facilities, including two hotels and a 33-storey office/trade mart tower. In this connection, will the Government inform this Council:
(a) whether it knows
(i) the reasons for the TDC's entrusting the management of the HKCEC to an operator which is a subsidiary of the developer, and stipulating in the management contract that the operator shall have the management right for a period as long as 40 years;
(ii) the method for calculating the annual fee payable to the TDC by the operator, and the amount of annual fee paid in each of the past five years; and
(iii) if the TDC has a right to effect early termination of the management contract, and whether it will consider doing so; if it will not consider, of the reasons for that; and
(b) whether it has assessed the causes of the rental charges for the convention and exhibition areas in the HKCEC being on average higher (approaching four times in an extreme case) than those of comparable venues in Singapore, Taipei, Bangkok and Melbourne, and whether the higher rentals are attributable to handing over the management of the HKCEC to a private operator?
Reply:
Madam President,
(a) (i) When the TDC invited tenders for the HKCEC development project in 1984, the successful bid included agreement to operate and manage the HKCEC as well as to pay an annual fee to the TDC. Later, the TDC signed an operation and management agreement with a subsidiary of the successful tenderer, agreeing that the term of the agreement should be 40 years (starting from November 1988). The management agreement provided, among other things, that the management company had to reach the services standards prescribed therein. If not, the TDC could, after giving notice, terminate the agreement.
At the time when the TDC invited tenders, the long term demand for offices, hotels and exhibition venues was rather uncertain. Also, the exhibition and convention trade was not a flourishing business then. There was considerable risk in developing the HKCEC. On the other hand, the TDC required the developer to bear the substantial construction cost, and to accept the following conditions:
* to ensure that the construction works and materials meet the highest international standards;
* to equip the HKCEC with necessary facilities; and
* to engage a firm or corporation that has appropriate qualifications and management expertise to manage and operate the HKCEC.
Against the above background and the stringent conditions, the TDC considered it acceptable that the tenderer asked for a longer term contract to operate and manage the HKCEC.
According to the new operation and management agreement signed between the TDC and the management company after the completion of the HKCEC Extension, the agreement term for the Extension is 20 years (starting from June 1997).
(ii) The management company is required to pay the TDC an annual fee calculated at the following percentages of the gross revenue from the operations of the HKCEC:
1/7/97 - 30/6/2000 6.211%
1/7/00 - 30/6/01 6.817%
1/7/01 - 30/6/02 7.423%
1/7/02 - 30/6/03 8.028%
1/7/03 - each subsequent year 8.634%
The fees paid by the management company to the TDC in the past five years are as follows:
1/7/94 - 30/6/95 HK$20,889,374
1/7/95 - 30/6/96 HK$21,568,295
1/7/96 - 30/6/97 HK$24,815,756
Since the completion of the Extension
1/7/97 - 30/6/98 HK$42,628,543
1/7/98 - 30/6/99 HK$40,282,387
(iii) The new agreement signed in 1997 stipulates that if the management company's performance in operating and managing the HKCEC fails to meet the stringent requirements, the TDC has a right to terminate the agreement by giving 90 days' notice.
TDC considers that the services provided by the management company in operating and managing the HKCEC and the Extension since end of 1988 and mid-1997 respectively have been satisfactory. Therefore, the TDC is not considering terminating the management agreement before the term expires.
(b) Generally speaking, the HKCEC's charges are higher than those charged in Singapore, Taipei, Bangkok and Melbourne. There are, however, various reasons contributing to the differences, including the cost of living in the city concerned, market demand and supply, location of the facilities, transport and other ancillary facilities, standard of the services, size of patronage and availability of government subvention.
Neither the Government nor the TDC subsidises the operating cost of the HKCEC. The management company assumes responsibility for its profits and losses and pays an annual fee to the TDC. This arrangement makes it necessary for the management company to be sensitive to the market conditions and to set the HKCEC's rental charges at a competitive level. In fact, in view of the recent economic situation, the management company announced at the beginning of this year that it would freeze venue rental charges for year 2000 and offer various rental discount packages in order to boost the utilisation of the HKCEC.
In addition, according to information provided by the TDC, the rental charges for the HKCEC's convention facilities are lower than comparable facilities in most first class hotels in Hong Kong.
End/Wednesday, December 8, 1999
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