Hong Kong Runway Project

Hong Kong Runway Project
The project under study is the construction of the Third Runway to the
existing airport at Chek Lap Kok in Hong Kong. Currently, Chek Lap Kok
airport has two runways that are only able to manage 54 flights an hour,
and cannot handle more than 60 flights an hour. The Airport Authority
indicates that the need for reducing air traffic must be solved by the
timeframe of 2017. After a feasibility study of the project, this report
indicates the ways of raising finance for the project and how to fund it
completion by the stated time.
Project Justification and Potential Benefits
The feasibility study estimates that the benefits of the project will be
worth investing. According to Dennis (2013), each of the flight at the
new improved airport will contribute up to about HK$450,000 in terms of
economic benefits to Hong Kong city. Of this financial gain, about
HK$170,000 will benefit the city directly while about HK$280,000 will be
the value of indirect benefits (Dennis, 2013). Taking an assumption of 5
per cent annual growth in the airport`s air traffic as well as a 30 per
cent increase in the capacity of the airport with a third runway, Hong
Kong will be better in value by about HK$56 billion if the situation is
compared with the current two runways.
According to Dr. Law of the authority, the current political and social
environment can only take this project to delay that might take about 12
years to build the runway. This is from the point of initial planning
and designing, public consultation process, constructing and completion
(Dennis, 2013).
Financing the Project
Cost of the Project
The project of constructing the proposed third runway will cost the
authority about USD17.4 billion and time. According to CAPA (2011), the
construction for the third runway and associated terminal as outlined by
the airport authority is one of two main options that were considered by
Hong Kong International Airport (HKIA). This cost and the proposed
projects are part of the HKIA`s Master Plan 2030. The injection of this
cost to the project would enable the authority to meet the ever
increasing city`s air traffic demand in target for 2030 and beyond. The
cost to be incurred for third runway project will be six times more than
the cost of constructing Chek Lap Kok Airport which is one of the
busiest airports in the world costing USD20 billion (CAPA, 2011).
The cost of financing the expanding terminal 1’s gross floor area by
82,000 sqm and increasing Terminal 2 check-in counters from the existing
56 to 112 will cost about 6.9 billion. Expanding the Midfield concourse,
and adding a second passenger concourse as well as a 20 remote
freighters stands with another 20 aircraft stands at the Midfield will
cost about 8.3 billion (CAPA, 2011). Extending the APM system up to the
passenger concourse at the Midfield will cost 2.3 billion. Developing an
additional baggage within the expanded Terminal 1 footprint will cost
2.1 billion. It will also cost the authority an additional 3.8 billion
to improve approximately 6km of road networks and to construct two
multi-storey car parks with capacity of 2800 car spaces thereby
relocating existing Limousine Lounge (CAPA, 2011).
Sources of Financing
Government Funding
The airport authority will be funded by the government to incur such
heavy costs and investment for the long term. It is the commitment of
the government to finance the project`s steps with the development
budget up to the completion of all the phases. Despite the world economy
being lower than the time of construction of the main airport, the
economy of the country has robust output to handle such an investment.
As a government project, the official government plan was adopted in
March of the year 2012 as the flagship project of the authority’s 2030
vision (Denslow, 2011). With the Hong Kong Government adopting the
runway project as the official expansion plan of the government,
financing of the project will not be a major setback in terms of policy
formulations.
External Borrowing
Due to constrained budgetary allocations that has faced the country over
the last few years the authority can seek the financing of
international financial institutions. Among the institutions include the
International Monetary fund, the World Bank, World development bank and
Asian development institutions. These institutions are appropriate in
financing capital and long-term infrastructural investments. Government
financial stability and economic strength of the country is paramount in
the success of the external borrowing to finance this project.
Internal Borrowing
This option will be the most appropriate if direct government funding
and external borrowing will not be capable to raise the required cost of
the project. The government can raise the limits of borrowing form the
current levels to accommodate the project that will lead to massive
future benefits. This financing is made possible through tools such as
taxation, government profits, sale of bonds and government rent.
However, this option should not be over used to avoid affecting the
growing economy and the developing income patterns of the citizenry.
References
CAPA, (2011). Center For Aviation. Hong Kong Airport considers USD17bn
third runway to
stay a global aviation hub.
bn-third-runway-to-stay-a-global-aviation-hub-53563>
Dennis E (2013). Chek Lap Kok urgently needs third runway: university
study.
nway-university-study>
Denslow, N (2011). “Cathay Pacific, Hong Kong Airport Become Biggest for
Freight”.
Bloomberg Business Week. Retrieved 7 May 2011.
FSTB (2013). Public Finance. The Financial Services and the Treasury
Bureau Home Page
address. < http://www.fstb.gov.hk>
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