Concern about the expenditure of the West Kowloon Cultural District project (2013/6/26)

President, the costs overrun of the gigantic West Kowloon Cultural District (WKCD) project is already a fact. Although the Government and the West Kowloon Cultural District Authority (WKCDA) have not disclosed any detailed financial information, based on the confirmation that the construction costs of the Xiqu Centre will rise from the original $1.3 billion to $2.7 billion and the doubling of construction costs in recent years, we can still project that the budget of the entire project may increase by 100% against the original funding of $21.6 billion. I very much agree with Mr Tony TSE that the WKCDA should be requested to formulate a more effective cost control proposal, so that more consideration can be given to increasing economic efficiency, and the WKCD project can be prevented from becoming a "white elephant project"

The construction period of the WKCD will span as long as 20 years, and changes are occurring to construction materials, manpower costs and external factors every single moment. I can therefore appreciate why there is a costs overrun, and I agree that the Government should continue to inject resources into the project within reasonable limits. The WKCD will enjoy a very lofty status, so if it is operated properly, it will be able to effectively promote the development of cultural pursuits and creative economic activities. However, if the authorities simply spend for the sake of spending in order to complete the project in total disregard for any costs overrun and future operational problems, and if the WKCDA also operates improperly, spends without any restraint and fails to secure stable revenue, then the WKCD will probably be turned into a big "fiscal black hole".

President, my remark is not without any justifications. As stated by Mr Tony TSE in his amendment, "Cost Aspect/Value for Money" only accounts for 10% in the assessment criteria of the Xiqu Centre Design Competition, and this leads to queries concerning the WKCDA's regard for the factor of value for money in the entire WKCD project. Actually, we can note from the discussion paper provided by the Government in 2008 that overall, the operating costs recovery rates of the cultural facilities in the WKCD will not be very high. Of all the 10-odd cultural and arts facilities in the WKCD, only the Great Theatre, the Exhibition Centre and the Mega Performance Venue will have operating surplus, while all other core arts and cultural facilities will not be financially self-sufficient.

Let us look at the operation of M+ as an example. The estimated costs of its advance works and purchase of works of art at 2008 prices stand at $4.8 billion. It is estimated that an operation deficit of $300 million will be recorded in each ensuing year, but the target annual recovery rate is only 18%. Among the dozen of facilities in the WKCD, M+ is the one with the greatest input but smallest output, and the operating deficit of the entire WKCD is mainly attributable to M+. People do support the building of an arts pavilion of international standard in Hong Kong, but is it thus worthwhile for them to bear such a huge financial burden? This question is worth considering. Even if M+ cannot yield the kind of efficiency which is commensurate with the input it  receives in the future, its operating cost recovery rate must at least be on a par with those of similar museums in other advanced countries. The failure to do so will pose huge financial risks to the Government.

President, when the Government submitted the relevant financing approach to the Legislative Council in 2008, it stated that the WKCD would derive its operating capital mainly from the rental proceeds of sites for commercial, retail, dining and entertainment facilities, which would provide a steady source of recurrent income to meet the operating deficits of the cultural and arts facilities. Rental proceeds will thus be the lifeline of the WKCD, and the planning of such facilities is therefore crucial to the revenue of the WKCD in the future. According to some surveyors, if the original plot ratio of 1.81 for the WKCD can be raised to 2, it will be possible to generate an additional 77 000 sq m of commercial floor area. In that case, the land premium alone will already amount to nearly $10 billion. If the additional floor area is all rented out, the monthly amount of additional rental proceeds will exceed $50 million. I am therefore in support of any proposal which seeks to increase revenue by mildly raising the plot ratio, and which does not affect the overall planning of the WKCD. Rental proceeds aside, the WKCDA should also explore every possible means to enhance the economic efficiency of the entire WKCD and increase the operating costs recovery rates.

President, the construction of the WKCD is a project spanning a very long time from preparation to commissioning. As estimated by the financial report submitted by the Government to seek funding from the Legislative Council in 2008, construction costs and labour costs were estimated to increase by 2% per annum respectively. But over the short span of five years since then, construction costs have almost increased by 100%, so the estimated revenue and expenditure for most of the items should no longer be applicable. I suggest that to prevent any repetition of the same mistake, the authorities should comprehensively review its investments in the project and the returns yielded following the completion and commissioning of Phase I of the WKCD project. If the budgeted amounts turn out to be much too inaccurate, or if the operating deficit is much too big, the authorities should re-examine the funding arrangement for Phase II and give a reasonable account to the general public.

President, I so submit.