Enginineer Economic and Costing Essay

The HKSAR authorities announced to the popular on 24 October 2006 that the former site of Hong Kong internationalistic Airport (Kai Tak Airport) would be redeveloped as an international sheet hub. The whole discover included devil sub objects, Site formation and travel goal and adjunct facilities construction.In project costing Inflation operator is apply as refer to giving medication inflation index in 2009 (2%) and 2010 (2.7%). As the reason of project postponed, the total cost increased well-nigh one billion dollars comp bed to the authorized plan receivable to retendering and ASD government requirements. at bottom project costing conside proportionalityns, upkeep cost in cash mix out is estimated to be roughly 221.9 Million per year from 2013.For project tax income, 2 main factors based on fixed rent from tenant berth ($13 million for ten year tenancy) and shifting rent from fates of yearly gross receipt. tokenish acceptable rate of sire (MARR) was also a pply and accounted for from swap Fund to calculate present worth analysis as well as benefit and cost proportion of proposed development.Aside from stinting and cost based justifications for project analysis, three main factors of social impacts be also considered in competitiveness in the canvas market, employment opportunity, as well as promoting sustainability from an environmental prospective.Overall, the demand for worldwide passenger levels are ever growing, to promote the international image of Hong Kong, the proposal of building the Kai Tak canvas final is feasible when considerations come into play for combination in socio-stinting factors.1BackgroundIn analyzing the Kai Tak Cruise celestial pole, we analyzed the socioeconomic implications for the development plan. The HKSAR government announced to the public on 24 October 2006 that the former site of Hong Kong International Airport (Kai Tak Airport) would be reissued for tender and to the redevelopment of reclaimed l and that encompass 7.6 hectares with a ecumenic development cost estimate of roughly $8.2 billion.A brief dry land of the Kai Tak area is that it is the site of the former Hong Kong Kai Tak International Airport located in Kowloon side of Hong Kong. Due to the sensitivity of limited land availability and urban density characteristics in Hong Kong, many rounds of deliberation and planning review by the government was inevitable to finally approve the decision of developing the Cruise Terminal. Ultimately, the new Cruise Terminal facility get out serve as a mix use facility to not only serves Hong Kongs resurgence as an ecotourism destination, but a place for exhibitions and alternate venues as well.2 woo and Revenue Analysis2.1 run across Costing and InvestmentSince the fail of tender in 2008, the government decided to proceed with the Design, Build and Lease (DBL) approach. The initial investiture includes two sub-projects Site formation and Cruise terminal & ancillary faciliti es building were original estimated costing $7.2 billion based on the damage in 2008. However, the construction cost in general had surged significantly in 2009 due to sharp increase of numerous materials cost like sand and stigma reinforcement ect.Finally the cost for Site formation roughly estimated as $2.30 billion with inflation factor 2% use. This part starts from 2009 and guide hold on in 2017. One year later, the construction of Cruise terminal and ancillary facilities building started and the inflation factor increase to 2.7%. The cost roughly estimated as $5.85 billion. Thus the total initial investment cost becomes $8.15 billion which is rough one billion difference to the original plan due to price infraction. The cash f embarrassed out show as belowpicThe foremost pier will be commenced to public in 2013 Q2 (2nd pier will be after 2017). Thus development 201213 FY as indication point and assume MARR to be 4.9 %, whereas the initial investment cost utilise after 2013 will also be calculated to the present revalue in 2013 for comparison. Therefore, the total initial investment of Cruise Terminal will be $8.1 billion. PW(I) = 8.1 billion (Refer to cecal appendage Table 1)Beyond the initial investment, the government estimates the annual repeated phthisis arising from site formation to be $15.5 million and from journey terminal & ancillary facilities building to be $206.4 million. Thus the total maintenance costs will be $221.9 Million per year after the terminal commences to the public. pic2.2Project RevenueDirect renting revenue to the governmentIn 2011, HKSAR launched an receptive tender for the tenancy. The Tender Assessment Panel considered that the Worldwide Cruise Terminals crime syndicate (WCT)s tender had complied the tender requirements. And the Central Tender Board authorise the acceptance of WCTs tender with renting detail as side by side(p)WCT will pay to the government a fixed Rent of almost $13 million for the 10-year tenancy. The Government will be also true a percentage of the gross receipt of the operator as the variable rent. The percentages of the annual gross receipt to be shared with the Government by WCT are as below pic3Evaluation of Economic Viability3.1Minimum Attractive Rate of retrograde (MARR)To understand the economic viability of carrying out this project, evaluation was conducted by applying the money- eon relationships and the concept of Minimum Attractive Rate of Return (MARR). Average investment ingathering of the Exchange Fund which is managed by the Hong Kong Monetary Authority (HKMA) was chosen as the MARR in the analysis.The Exchange Funds primary objective is to affect the tack value of the currency of Hong Kong. The Exchange Fund may also be used to maintain the stability and integrity of Hong Kongs monetary and pecuniary systems, and can be invested in any securities or other assets to turn over investment return.According to the HKMA, the average return of the F und was 3.5% over the be three years, 3.2% over the last five years, 4.9% over the last 10 years and 5.6% since 1994. In our analysis, the 10-year average investment return, which is 4.9%, was selected to be the MARR.The annual return of the Fund from 1994 to 2011 is shown in Appendix Table 2 shows the 2011 investment return and the average investment returns of the Fund over a number of diametrical time horizons.The Kai Tak Cruise Terminal ProjectAccording to the HKSAR government, the total chapiter investment required for the project is HKD 8156 million and the estimated annual perennial expenditure is HKD 221.9 million. The annual income will come from a fixed rent for the 10-year subroutine as well as a variable rent with the percentage of the operators gross receipts. The maximum percentage will be 34% when the gross receipts are great than HKD 90 million.3.2Evaluation of the Project by endue Worth method (PW)In our analysis, we first applied the Present Worth (PW) metho d, which is commonly used for evaluating private financed projects. Our aim is to bugger off out the operators annual gross receipt required so that the project can be considered to be economically reassert if public benefits are not included in the calculation.By using the PW method, all cash flows and outflows are discounted to the present point in time at the determined MARR (4.9%). The PW is required to be greater or make up to zero if a project is to be considered as economically justified. In our calculation, the evaluation period is 10 years and assuming that the annual recurrent expenditure is a fixed contract amount. To estimate the operating revenue of the Kai Tak Cruise Terminal, reference to the operating revenue of port Everglades in unify State was made. Port Everglades is one of the three busiest sheet ports in the world. In 2010, its operating revenue from cruise sector was about USD 45.7 million (HKD 356.5 million).From the result of the calculation, the presen t value (2013-2014) is HKD 8846 million (PW 0) (refer to Table 3), which also means that the project is not economically justified when the public benefits are not included. The discipline used for the calculation and the cash flow are shown in Appendix Table 3. In addition, our analysis showed that the operators first annual gross receipts need to be HKD 3193 million (nearly nine-fold more than Port Everglades) and then have 4% annual increase for PW to be greater than zero. Achieving this level of income is extremely difficult if not impossible.Table 3 Present equivalent of cash flowIn next section, Benefit Cost Ratio method, which is commonly used for evaluating public projects by considering public benefits, is applied in the analysis.3.3B/C RatioOverall economic benefit to Hong Kong for certain the government does not focus on the renting income but the general economic benefit to Hong Kong. The project leads the development of the Cruise Economy which adds supernumerary v alue to tourism, retail & dinning, travel trade and hotel etc. Based on the estimation from Tourism commission for latest cruise passengers expenditure info and multiplier effect, the cruise industry will bring following economic benefits to Hong Kong under different scenariosThe low ontogeny scenario assumes growth brought by regional cruise operators developing cruise service with Hong Kong as homeport. The high growth scenario assumes growth brought by international cruise operators developing cruise services with Hong Kong as a homeport and port-of-call.We have calculated the B/C ratio for different scenarios as below with following assumptions1) Interest rate is 4.9%2) The government only gets $13 million rent3) The Cruise Terminal regular to movement till following yearTherefore, even under low growth scenario, both conventional and modified B/C ratio greater than 1 after the Cruise Terminal continuous to operation over ten years, this project is worth to proceed.4Social I mpacts4.1Higher competitiveness in cruise marketsCompared to Shanghai and Singapore where the cruise terminals have been further developed, Hong Kongs cruise market would be highly constrained if maintained at the original level. Because Hong Kong will require an additional berth between 2009 and 2015, and one to two berths beyond 2015 to sustain its development as a regional cruise hub in Asia Pacific region.4.2Increase of employment chancesCruise vessels homeport at Hong Kong will relieve oneself job opportunities in related industries including hotel, catering, shipping management, shipping supplies and insurance. It may certify some 6900 to 10900 employment opportunities in 2020.4.3Environmental impactsThe terminal had obtained Platinum rating in BEAM Plus Project Assessment in 2012, which means a high level achievement in three Green aspects (energy saving, feel of indoor environment, and environmental impacts to neighbors)5ConclusionFrom studies of worldwide passenger deman d levels, it is estimated that there is a steady increase from 13.9 million to roughly 23.8 31.5 million by 2020. Although, this is a world estimate and Hong Kong is only small spectrum of the world, there is seemingly lavish evidence from cruise terminal consultancy for Asia region to instill a sure growth for Hong Kong. Overall, the project does not show promise economically with recurrent expenditures with operational revenues. It should be noted that the facility does not imply with an general picture depicted in the B/C ratio. Therefore, to promote Hong Kongs international image and standstill in the international sector, the Kai Tak Cruise Terminal is a viable option for Hong Kongs bright future.