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LCQ5: Extension of franchises for air cargo terminals

    Following is a question by the Hon Andrew Cheng and a reply by the Secretary for Transport and Housing, Ms Eva Cheng, at the Legislative Council meeting today (February 20):


    It is learnt that Airport Authority (AA) is conducting an open tender exercise for the development of a new cargo terminal. In this connection, will the Government inform this Council whether it knows:

(a)  the expiry dates of the franchises granted to the two existing air cargo terminal operators at the time when they signed the relevant agreements with AA in 1995 and 1996 respectively, and the latest expiry dates of such franchises; if the franchises have been extended, the respective amounts of payment made by the operators concerned for such extension; if no payment was required, of the reasons for that;

(b)  the circumstances under which the franchise granted to the new cargo terminal operator will be extended, and the amount of payment to be made to AA for such extension; if no payment is required, of the reasons for that; and

(c)  if AA has taken specific measures to ensure that all interested tenderers are aware, before submitting their bids, that the successful bidder has the chance of the franchise being extended; if so, of the details; if not, the reasons for that?

Reply :

Madam President,

(a)  When the franchise agreements of Hong Kong Air Cargo Terminals Limited (Hactl) and Asia Airfreight Terminal Company Limited (AAT) were first granted, the franchise periods were 20 years in both cases (i.e. from 1998 to 2018). Subsequently in 2001, having considered the difficulties faced by the aviation industry at that time, AA offered to all the ground handling franchisees the extension of their franchise periods subject to conditions, and discussed with each franchisee the specific conditions. As a result, AA agreed with some of the franchisees on the extension of the franchise periods, whilst other franchisees declined the offer. AAT's franchise period was extended to 30 years (i.e. expiring in 2028). At present, Hactl's franchise period is still 20 years, but has been paying AA an annual fee to keep open the option of extending the franchise period by 10 years to 2028.

    Without consent from the franchisee in question, AA is in no position to disclose the details relating to the amount of franchise fee payable by a franchisee during the extended franchise period, which is sensitive commercial information between AA and that franchisee. However, generally speaking, AA would have the opportunity to share the profits of the franchisees over the extended franchise periods.

(b)  The tender document for the new cargo terminal at the Hong Kong International Airport sets out the terms of the franchise, including a 20-year franchise period. Based on these terms, AA has invited potential tenderers to draw up their business plans for the cargo terminal. Moreover, in accordance with the relevant provision in the tender document, tenderers may submit alternative proposals for AA's consideration. They may, before the specified date, submit enquiries to AA regarding the content of the tender document. In order to ensure that all potential tenderers would receive the same information at the same time for the preparation of their business plans, AA collated all the enquiries and sent out to all the potential tenderers its responses to all enquires, including those submitted by other potential tenderers. The tender document also sets out the considerations and evaluation criteria adopted by AA in selecting the preferred tenderer. In accordance with the provisions of the tender document, after evaluating the submitted business plans, AA may invite the short-listed tenderer(s) to enter into commercial negotiations on the specific terms of the franchise agreement.

    The tender document does not provide for automatic extension of the franchise period. AA considered that the franchise period of 20 years could provide a sufficient economic incentive for investors to bid for the project, and on the other hand allow AA to review the arrangements for air cargo handling services in a reasonable timeframe. 

(c)  To ensure the fairness of the tendering process, AA has invited the Independent Commission Against Corruption (ICAC) to advise on the tendering and evaluation procedures as an independent observer so that the tendering process meets the principle of fairness. ICAC has specifically recommended that AA ensure that all potential tenderers have equal access to information. During the tendering process, upon enquiries from potential tenderers on the question of possible extension of the franchise period, AA referred all potential tenderers in writing to the relevant provision in the tender document that they might submit alternative proposals to AA for consideration.

Ends/Wednesday, February 20, 2008
Issued at HKT 15:17


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