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LCQ19: Three-runway system at Hong Kong International Airport

     Following is a question by Dr Hon Kwok Ka-ki and a written reply by the Acting Secretary for Transport and Housing, Mr Yau Shing-mu, in the Legislative Council today (April 15):


     On March 17 this year, the Chief Executive in Council affirmed the need to expand the Hong Kong International Airport into a three-runway system (3RS), with a construction cost around $141.5 billion in money-of-the-day prices. As for the financial arrangement, the Airport Authority Hong Kong (AAHK) has proposed that a "joint contribution" principle be adopted to meet the expenditures on 3RS, making use of internal sources of fund, external borrowing and levying charges from users (the financing arrangement) to finance the project. As such, the relevant expenditures do not require the vetting and approval of the Finance Committee of this Council. Regarding the management of the Pearl River Delta (PRD) airspace, the Secretary for Transport and Housing has advised that the Civil Aviation Administration of China, the Civil Aviation Department of Hong Kong and the Civil Aviation Authority of Macao jointly drew up the"PRD Region Air Traffic Management Planning and Implementation Plan" (the Plan) in 2007, with a view to implementing a number of optimisation measures in phases before 2020. It has been reported that the Plan has proposed to remove the airspace constraints of PRD and set up "the Southern PRD Terminal Area", with the airspace to be managed jointly by the relevant departments of the Guangdong province and Hong Kong. Some concern groups are of the view that such an arrangement is tantamount to the introduction of a "co-location arrangement in the air", and it may contravene the requirements under Article 130 of the Basic Law that the Hong Kong Special Administrative Region shall be responsible on its own for matters of routine business and technical management of civil aviation. These concern groups also query the economic benefits that will be brought about by 3RS as well as AAHK's practice of not publishing its internal rate of return (IRR). In this connection, will the Government inform this Council:

(a) given that Article 73 of the Basic Law stipulates that one of the powers and functions exercised by this Council is to approve taxation and public expenditure, whether the Government has sought legal advice on the compliance or otherwise of the financing arrangement with that Article; if it has, of the details; if not, whether the Government has assessed the legal risks that may be brought about by the financing arrangement;

(b) whether it knows the details of AAHK's external borrowing plan for 3RS; whether the Government has conducted an independent financial risk assessment on the plan; if it has, of the details; whether the Government has assessed the impacts on the debts to be borne by AAHK in the event of cost overrun of the 3RS project or returns failing to meet the expected targets in future; whether the Government has assessed the possible financial and legal consequences should AAHK fail to repay the debts; if it has, of the details, and whether the Government will help AAHK repay all or part of the debts;

(c) whether the relevant departments of Hong Kong, the Mainland and Macao have convened meetings to discuss the optimisation measures in the Plan; if they have, of the dates, venues and attendance lists of such meetings, and the details of the various optimisation measures that are planned to be implemented; whether the Government has plans to discuss with the mainland authorities the re-delineation of the airspace boundaries of Hong Kong and the Mainland; if it has such plans, of the details and the implementation timetable;

(d) whether it has studied if the setting up of the Southern PRD Terminal Area complies with the requirements under Article 130 of the Basic Law; if it has, of the details; if not, whether the Government has assessed the legal consequences of removing the airspace constraints of PRD; and

(e) whether it knows the reasons for AAHK not publishing the IRR of 3RS; whether AAHK has provided such information to the Government; if it has, of the details; if not, the reasons for that; whether the Government has assessed the economic impacts on 3RS to be brought about by the situation that the problems of the airspace of PRD have not been solved; if it has, of the details?



     Air traffic at Hong Kong International Airport (HKIA) has been growing significantly over the past few years. According to the latest projection, the existing two-runway system (2RS) would likely reach its maximum practical capacity of 420 000 air traffic movements (ATMs) per annum in 2016 or 2017, a few years ahead of the original forecast in the HKIA Master Plan 2030 released by the Airport Authority Hong Kong (AAHK) in 2011. Besides, Hong Kong is facing intensifying competition from airports in neighbouring cities such as Singapore, Seoul, Shanghai, Guangzhou, Shenzhen, etc. All the airports in these cities have already committed/planned or are in the course of implementing major airport expansion plans. Without major expansion plans like the three-runway system (3RS) at HKIA, Hong Kong will eventually lose out on the development of our aviation business, as well as affiliated sectors particularly in logistics, tourism, trade and retail, to our major competitors. There is an urgent need for the implementation of the 3RS project to meet Hong Kong's long-term air traffic demand and to maintain our overall competitiveness.

     Our reply to the question from Dr Hon Kwok Ka-ki is as follows:

(a) As the proponent of the 3RS project, AAHK has drawn up the financial arrangement of the project and submitted a proposal to the Government. As set out in its proposal, AAHK will finance the 3RS project by making use of internal sources of funds, external borrowings and charging airport users (including the adjustment of airport charges payable by the airlines and the imposition of Airport Construction Fee (ACF) on departing local and foreign air passengers). This proposal, which is a three-pronged approach under the principle of joint contribution, is more equitable than direct government funding out of the general revenue or asking tax payers at large to pay for the construction costs. Under the proposed financial arrangement, no fund allocation, capital injection or loan guarantee from the Government is required.

     Article 73 of the Basic Law stipulates that the powers and functions of the Legislative Council include the approval of taxation and public expenditure. Since the financing arrangement proposed by AAHK does not involve taxation or public expenditure, the requirements of Article 73 are not applicable here.

(b) According to its financial consultant, based on AAHK's current excellent AAA credit rating, robust revenue performance in the past and its strong financial position, as well as the continued growth in revenue projected for future years in the light of the steadily growing air traffic demand at HKIA, AAHK's proposal to self-finance the project is reasonable and practicable. In its briefing to the Legislative Council's Panel on Economic Development on March 23, 2015, AAHK revealed that it expected to raise some HK$53 billion from the market. External borrowing is not only financially viable, but also makes prudent commercial sense, since the market can help to assess whether there is indeed a sound economic and business case for the 3RS project. The Government's independent financial consultant has also agreed to the above conclusion.

     As AAHK has to finance the 3RS project by itself, it will critically examine if there is any room for reducing the capital cost and at the same time adopt stringent cost-control measures during the detailed design and construction stages of the 3RS project. It has also conducted sensitivity tests on the construction programme, revenue and cost estimates of the project. The Government has made it clear to AAHK that it has the responsibility to ensure sound project management and to contain the project cost within budget. In the event of cost overrun, the Government expects AAHK to exhaust all possible and reasonable means to cope with the overruns.

(c) and (d) In recent years, driven by the robust economic growth of Hong Kong and the nearby Pearl River Delta (PRD) region, air traffic in the region has become busier day by day. In as early as 2004, the Civil Aviation Administration of China (CAAC), the Civil Aviation Department (CAD) of Hong Kong and the Civil Aviation Authority of Macao (CAAM) set up the "PRD Region Air Traffic Management Planning and Implementation Tripartite Working Group (TWG)" to formulate measures to rationalise the airspace structure and air traffic management arrangements in the PRD region to optimise the use of airspace and enhance safety. After conducting more than ten different meetings, the TWG jointly drew up the "PRD Region Air Traffic Management Planning and Implementation Plan (Version 2.0)" (the Plan) in 2007, which clearly stipulated the short, medium and long term optimisation targets and measures to be achieved and implemented before 2020. The TWG also agreed to optimise the use of the PRD airspace resources through joint airspace planning, use of common standards and harmonised flight procedure design, with a view to supporting the continued development of the civil aviation industry in the region. The Plan has fully considered the practical operational needs of the major airports in the region and the estimated air traffic flow and demand of these airports up to 2020. The Plan has been analysed and studied by technical personnel from the Mainland, Hong Kong and Macao with the use of advanced evaluation techniques, and has incorporated the advice of air traffic control experts of the three sides during its formulation. It is a practical and feasible plan for mutual benefits and will achieve a win-win situation for the three sides.

     The CAD has been discussing the implementation of the measures set out in the Plan and the associated technical arrangements with the CAAC and the CAAM through the TWG. Since the formulation of the Plan in 2007, over ten meetings at different levels, which were mainly attended by officers responsible for policies and technicalities in the aviation authorities of the three sides, have been held in the Mainland, Hong Kong and Macao. Through the efforts of the TWG, a number of air traffic management enhancement measures in the Plan have been implemented, including the establishment of peripheral flight paths in the PRD region, addition of handover points and adjustment of the Zhuhai airspace structure, thereby enhancing the efficiency in flight operations and air traffic management. None of the air traffic management enhancement measures set out in the Plan concern the allocation of civil aviation airspace stipulated by the International Civil Aviation Organisation (ICAO).

     The CAD will, through the TWG, continue to implement the measures in the Plan progressively with the CAAC and CAAM to support the planning of the 3RS project at the HKIA and cater for the development needs of the airports in the region, thereby achieving mutual benefits and a win-win situation for the three sides. In the course of taking forward the Plan, the CAD will ensure that the arrangements made are in compliant with the relevant provisions of the Basic Law and the relevant requirements set down by the ICAO.

(e) The Financial Internal Rate of Return (FIRR) of the 3RS is directly related to AAHK's projected revenue in the future. In response to the views of the Government and the general public, AAHK is now reviewing the charging level of the proposed ACF, with a view to minimising it to lessen air passengers' burden. Upon completion of the review, AAHK will re-calculate the FIRR of the 3RS project based on the review findings, and announce the FIRR together with its review findings.

     It is worth noting that the FIRR only considers the financial viability of 3RS as a standalone project; it does not reflect the project's overall economic contribution to Hong Kong. Regarding the economic benefits of the 3RS, according to the projections made by AAHK's consultant, based on the maximum passenger/cargo throughput that can be achieved under the 3RS (i.e. around 100 million of passengers and around 9 million tonnes of cargo), the 3RS can bring additional economic benefits of $455 billion (in 2012 dollars) over the 50-year period from 2012 to 2061, as compared with the existing 2RS.

     To optimise the use and management of the PRD airspace, the CAD will continue to discuss with the CAAC and the CAAM ways to gradually take forward the Plan jointly drawn up in 2007, so that the planned maximum capacity target of the 3RS (i.e. 102 ATMs per hour) can be achieved.

Ends/Wednesday, April 15, 2015
Issued at HKT 15:00


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