LegCo Paper No. CB(1) 1780/95-96
(These notes have been seen by the Administration)
File Ref: CB1/PL/ES/1

LegCo Panel on Economic Services
LegCo Panel on Planning, Lands and Works

Minutes of the Joint Panel Meeting
on Thursday, 30 May 1996 at 10:45 a.m.
in the Chamber of the Legislative Council Building

Members Present :

LegCo Panel on Economic Services
Hon Henry TANG Ying-yen, JP (Chairman)
* Hon CHIM Pui-chung
Hon LEE Wing-tat
Hon LI Wah-ming
Hon Howard YOUNG
Hon CHAN Kam-lam
* Hon SIN Chung-kai
Hon Mrs Elizabeth WONG CHIEN Chi-lien, CBE, ISO, JP

LegCo Panel on Planning, Lands and Works
Hon Edward HO Sing-tin, OBE, JP (Chairman)
Hon Albert CHAN Wai-yip (Deputy Chairman)
Hon NGAN Kam-chuen

Members Absent :

LegCo Panel on Economic Services
Dr Hon LAW Cheung-kwok (Deputy Chairman)
Hon Mrs Selina CHOW, LIANG Shuk-yee, OBE, JP
Dr Hon David LI Kwok-po, OBE, LLD(Cantab), JP
Hon Mrs Miriam LAU Kin-yee, OBE, JP
Dr Hon HUANG Chen-ya, MBE
* Dr Hon Samuel WONG Ping-wai, MBE, FEng, JP
* Dr Hon Philip WONG Yu-hong
Dr Hon Anthony CHEUNG Bing-leung
Hon LAU Chin-shek

LegCo Panel on Planning, Lands and Works
Hon LAU Wong-fat, OBE, JP
Hon James TO Kun-sun
Hon CHOY Kan-pui, JP
Hon TSANG Kin-shing

(*Also members of LegCo Panel on Planning, Lands and Works)

Members Attending :

    Hon Zachary WONG Wai-yin
    Hon David CHU Yu-lin
    Hon LEE Kai-ming

Public Officers Attending :

Mr Gordon SIU Kwing-chue
Secretary for Economic Services
Mr Billy LAM Chung-lun
New Airport Projects Co-ordination Office
Mr Richard Siegel
Director of Civil Aviation
Dr Henry Townsend
Chief Executive Officer
Airport Authority

Staff in Attendance :

Ms Estella CHAN
Chief Assistant Secretary (1)4
Miss Anita SIT
Senior Assistant Secretary (1)6

Election of Chairman

Mr Henry TANG was elected Chairman for the meeting.

The second runway and associated facilities at Hong Kong’s airport

(“Agreed Minute of the Airport Committee of the Sino-British Joint Liaison Group” and Summary Report entitled “The second runway and associated facilities at Hong Kong’s new airport”tabled)


2. The Chairman advised members that the meeting was called in response to the request of the Administration. In view of the importance of the matter, he and Mr Edward HO, Chairman of the Panel on Planning, Lands and Works, had agreed that this meeting should be held despite the short notice.

3. At the invitation of the Chairman, Mr Gordon SIU explained that the purpose of calling the meeting at such short notice was to brief Members of the LegCo at the earliest opportunity on the consensus reached by the Chinese and British sides of the Airport Committee of the Sino-British Joint Liaison Group (JLG) on the construction of the second runway of the new airport. It was only on Tuesday, 28 May 1996, i.e. two days before this meeting, that the two sides had reached a common view on the proposal to proceed as quickly as possible with the design, construction and commissioning of the second runway project. The two sides had signed an Agreed Minute just this morning and the Administration wished to brief members of LegCo on the subject before meeting the Airport Consultative Committee and the press.

4. In response to some members’ questions on the lack of consultation with LegCo and the public on the decision process, Mr SIU stressed that members of the Economic Services Panel had already been briefed on the subject as early as in March 1996, prior to briefing the Preparatory Committee, and a progress report was provided to the Panel in May 1996 to update members on the development. (Secretariat’s note: The progress report was circulated to members of the Economic Services Panel vide LegCo Paper No. CB(1) 1464/95-96 dated 24 May 1996.) The Administration had over the two past years received and listened to views expressed by the trades concerned, including the tourist industry, the aviation and freight industries, the professional bodies concerned and the Airport Consultative Committee. These views had been taken into account when the decision was reached to proceed as quickly as possible with the second runway project.

The proposed works and financial implications

5. Dr Henry Townsend then briefed members on the scope of the works involved in the construction of the second runway, which included the runway itself, two parallel taxiways, connections to the taxiway system, and the northwest arm of the Y concourse which would provide 10 more airbridge served gates in addition to the present 38 gates of the first phase works. All works were expected to commence in the fall of 1996, aiming at completion by autumn 1998, or about six months after the commissioning of the first phase works in April 1998. The total construction cost for the project was estimated to be HK$4.3 billion in money-of-the-day (MOD) prices as of late 1998, comprising of the following:

  1. $2.2 billion for the construction of the runway, taxiways and their associated facilities; and
  2. $2.1 billion for the northwest concourse apron and associated facilities.

6. Mr Billy LAM briefed members on the government facilities associated with the second runway as set out in Annex D of the Summary Report. The estimated construction cost for the facilities was HK$600 million (MOD). He said that the Administration would put a funding proposal for these facilities to the Finance Committee (FC) shortly.

7. A member pointed out that since the government facilities were an integral part of the second runway project, the funding proposal to be put to the FC would become a case of fait accompli since agreement to proceed with the construction of the second runway had already been decided. In response, Mr LAM explained that the matters which the Airport Committee of the JLG had agreed on were only related to the second runway and the associated facilities under the purview of the Airport Authority (AA); the associated government facilities were outside the scope of the Agreed Minute. Mr SIU added that the Memorandum of Understanding on the New Airport (MOU) signed in 1991 had provided that the British and Chinese sides would discuss and reach a common view before proceeding with any other major airport projects. He assured members that the Administration would follow the normal procedures for seeking the necessary funding for the construction of the government facilities, and FC’s approval was required.

8. In reply to a member’s enquiry on what impact the additional $600 million for the government facilities would have on the 1996-97 budget, Mr LAM said that FC’s approval would be sought for the commitment, but as far as the funding for 1996-97 was concerned, the commitment was expected to be in the region of $10 million.

Impact on AA’s financial position

9. A member queried if the AA’s confidence in its ability to raise the $4.3 billion all by borrowing was due to an over-injection of Government equity in the past. He was also concerned about whether there had been adequate Government monitoring of AA’s financial management so that public interests were safeguarded. In response, Dr Townsend said that the AA’s confidence in being able to borrow all the funds needed for the second runway was due to the very satisfactory arrangements made for the financing of the $8.2 billion for the first phase works. He confirmed that the Government’s equity injection had helped enhance the AA’s financial position and hence its credit raising capability.

10. Mr SIU further advised that the AA was in a very good financial position not in the sense that it had a large cash reserve, but that it was viewed by banks as having very reliable revenue sources and thus was able to obtain very good terms for the bank loans raised. The financial strength of AA was also attributable to the projected high growth in air traffic demand as the local economy continued to prosper. At the request of members, Mr SIU agreed to provide information on the funding arrangement for the second runway and the financial position of the AA.


11. As regards Government monitoring of the AA’s financial management, Mr LAM said that there were Government representatives on the AA Board. The New Airport Projects Co-ordination Office (NAPCO) also played a monitoring role. So far, the AA had kept the construction cost for the first phase works well under control.

12. Regarding members’ concern about the ratio between Government equity and borrowing from non-government sources for financing the first and second runways and the associated facilities under the AA’s purview, Mr LAM advised that the Sino-British MOU on the New Airport stipulated that Government’s injection of equity into the AA should not be less than $36.6 billion and the amount of borrowing should not exceed $11.6 billion upon completion of the first phase works of the Airport Project. Due to the effective cost control by AA and close monitoring by Government, the AA’s financial condition had been very healthy. There was no likelihood that the ceiling for borrowing would exceed the MOU limit for the first phase works.

13. A member suggested that the public should have the opportunity to invest in the new airport. He enquired if the AA had any plan of issuing bonds as part of the borrowing for the second runway works. Dr Townsend responded that there had always been the intention to allow public participation and to this end AA was consulting the Hong Kong Monetary Authority on debt securities programmes etc. for the AA. However, at this stage, the AA had not yet decided on the proportion of borrowing direct from banks and through the issuance of debt securities for the second runway works. The member pointed out that the AA might be more inclined to borrow direct from banks for administrative expediency. He urged the Administration to closely monitor the financial arrangements for the second runway works, bearing in mind the need to provide an opportunity for the public to invest in the airport.

Method of contracting-out construction works for the second runway

14. Some members expressed concern about the indication that AA would be negotiating with the current contractors with a view to offering the construction contracts for the second runway to these contractors instead of going through an open tender exercise. A member pointed out that this arrangement would give the current contractors a better bargaining position, and deprived other contractors of the opportunity of participating in the construction works.

15. In response, Dr Townsend explained that the AA Board had thoroughly deliberated on the issue, and considered that such a situation would not arise as AA had detailed information of the pricing of the first phase works contracts which had come into existence through a highly competitive tendering process. Dr Townsend stressed that the performance of the contractors so far had been excellent and by making use of the already existing equipment and expertise, the prices of the works contracts would definitely be in AA’s interest. Nevertheless, if the negotiation with any of these contractors had come to an impasse, the AA Board would consider whether the contracts should be awarded by tender.

16. Mr SIU added that the AA had not precluded the possibility of putting the second runway contracts to open tender. Mr LAM further explained that the Project Committee of the AA, chaired by the Secretary for Works, was responsible for monitoring the contracts for the Airport Project. If the terms of the contracts, after negotiation, failed to give the best value-for-money, the Project Committee could recommend to the Board to put the contracts to open tender.

Impact on the progress of the first phase works

17. Regarding members’ concern about the allocation of resources between the works of the two phases, Dr Townsend assured that the AA would be cautious not to jeopardise the successful completion of the Phase 1a works on time and within budget. As far as possible, all new works would be planned sequentially, and the contractors’ resources and AA’s supervisory staff would only be re-deployed to work for the second runway on completion of the Phase 1a works. Hence, little additional manpower would be required for the new works; supervisory staff and workers would just be engaged for a longer period of time.

18. Mr LAM added that the Administration had also discussed with the AA to ensure that the second runway works would not adversely affect the completion of the first runway. In this repect, NAPCO would continue to monitor the progress of the Airport Project closely. Quarterly reports would continue to be provided to the Legislative Council setting out in detail the progress of each facility with information on the respective percentage of completion and the cumulative expenses incurred.

Employment of workers for the second runway works

19. A member enquired in what manner the Administration and the AA would ensure that local workers would be given first priority in getting employment in the second runway works. He pointed out that the existing contractors, if offered the second runway contracts, might be inclined to extend the contracts of the imported workers currently employed to undertake the second runway works.

20. In response to the member’s concern, Mr LAM advised that all along, the Administration and the AA had upheld the principle that only when suitable qualified local workers were not available should contractors be allowed to import labour from other places. The Labour Department had laid down procedures to prevent unwarranted importation of labour. He understood that the procedures had recently been reviewed and improvements pertaining to upholding the principle had been made.

Impact on the Civil Aviation Department

21. As regards the anticipated impact of commissioning the second runway soon after the commissioning of the first runway on the Civil Aviation Department, Mr Richard Siegel advised that to cope with the future demand, the Department would speed up its recruitment programme for air traffic controllers to tie in with the commissioning of the first and second runways. As for the procurement of equipment, the required equipment for the second runway could be added onto the procurement programme for the first runway. He anticipated that the overall impact would not be great and could be well coped with by the Department.

Adequacy of airbridge served gates

22. On the concern about the adequacy of aircraft parking stands with airbridge served gates, Dr Townsend advised that it was estimated that the 48 airbridge served gates would have the capacity to serve up to 90% of the passengers even during peak hours. A member opined that airlines should be encouraged to use airbridge served gates instead of remote stands as far as possible for the convenience of passengers. Dr Townsend advised that during the recent discussion with airlines on the allocation of parking stands, most airlines had indicated their preference for airbridge served gates. He said that the AA would encourage the airlines to use these gates as far as they were available. In reply to the Chairman, Dr Townsend further advised that the AA had not yet taken a decision on the respective charges for airbridged parking stands and remote stands. The AA would however closely examine the appropriate parity between the charges for the two types of stands taking into account members’ concern.

Projected capacity of the new airport

23. Regarding the projected capacity of the new airport after the completion of the second runway and the prospect of any further expansion, Dr Townsend advised that the new airport with two runways would be able to operate successfully to cope with the air traffic demand through the years up to 2010 and beyond. However, because of the projected 6% annual growth in passenger traffic and perhaps even higher growth in freight cargo, the AA would need to plan for further facilities within this timeframe. Before reaching 2010, the AA would look into the need for building the midfield concourse and terminal two. It was unlikely that there would be a need for a third runway in the airport and its feasibility had yet to be examined.

Terms of appointment for AA Staff

24. In respect of terms of appointment for AA staff, Dr Townsend advised that since early 1994, all new employees of the AA had been appointed on local terms. The number of employees on overseas terms had also been reduced through natural turnover and upon renewal of contracts.

25. There being no other business, the meeting ended at 11:40 am.

LegCo Secretariat
8 July 1996

Last Updated on 14 Aug, 1998