LegCo Economic Services Panel
Management Reform of Public Cargo Working Areas

Introduction

1. At the LegCo Economic Services Panel meeting held on 3 June 1996 members supported the Administration’s management reform proposal on the Public Cargo Working Areas (PCWAs) in particular the allocation of berthing spaces by tender. The Administration undertook to develop a detailed tender arrangement in consultation with the operators and report to the Panel accordingly.

Proposed Tendering Arrangement

2. In line with the recommendations of the Director of Audit and the Public Accounts Committee (See Annex 1), the ultimate aim of the PCWA reform is to invite open tender for the operation of the berthing spaces. However, taking into account the concerns/views of the existing cargo operators when they were consulted in the last few months, we propose to implement the first phase of the reform as follows :

  1. to allocate all berths (including first-come-first-served berths and fast working berths) in PCWAs by restricted tenders to recognised existing operators through a regional bidding arrangement as follows:

      Kowloon East Region - Kwun Tong and Cha Kwo Ling PCWAs.

      Kowloon West Region - Tsuen Wan and Yaumatei PCWAs.

      New Territories Region - Tuen Mun and Rambler Channel PCWAs.

      Hong Kong Region - Chai Wan, Wanchai, Sheung Wan and Western District PCWAs;

  2. to allocate remaining berths after the exercise in (a) to unsuccessful operators by restricted tenders on a territory-wide basis;
  3. when existing operators are accommodated, remaining berths will be allocated by open tenders to any interested parties.

3. The first phase will last for three years. We will review the situation in the light of operational experience before deciding on the future phases of the reform.

Merits of the proposed berth allocation system

4. The proposed berth allocation arrangement will enable all existing operators to continue to operate from PCWAs and have the freedom to manage the berthing spaces. It meets their aspiration and understanding because:

  1. they are given first priority in the allocation of berthing spaces;
  2. since bidding is restricted to operators within the same region dislocation to other region will be reduced to a minimum;
  3. it meets the public expectation in the allocation of public resources. It is also in line with the Administration’s established practice of disposal of public resources by tenders;
  4. it meets, to a large extent, the recommendation of the Director of Audit and Public Accounts Committee for an open, fair, and competitive bidding process in the allocation of berthing spaces;
  5. it will rationalise usage of berthing spaces, and increase cargo throughput in PCWAs because with a fixed term of lease the operators will have the incentive to invest in modern cargo handling equipment. This would lead to greater berth utilization and cargo throughput; and
  6. those operators successful in securing a lease of a berth would be able to have full control over their berths including legally subleting their berths, subject to the lease conditions, during slack time. This would improve availability of berths to others and ultimately reduce the cost of hiring a berth in the secondary market.

Reserve price

5. By nature a restricted tender arrangement will not be as competitive as an open tender arrangement. The proposed tender arrangement will be further restricted under the regional tender arrangement. Since competition is limited a reserve price is therefore necessary to protect the public revenue and to ensure that operators are not being unfairly subsidised to distort fair competition in the market. The current low fee structure has been criticised by the Director of Audit and the Police as the main cause for monopolisation of berths and unlawful activities in PCWAs. The reserve price will be set with the following principles:

  1. to reflect the difference in popularity between Hong Kong island and Kowloon/New Territories; and
  2. the value of average net fixed assets (ANFA) of PCWAs for 1996-97, at historical cost and excluding land, is $856 million. The cost of capital for providing these assets is 11% on ANFA in line with the methodology under the Government utilities approach. Nonetheless, we only aim to recover the cost of capital in full in the longer term.

6. The reserve prices set according to these principles therefore will mean that it will be substantially below the market price for leasing these berths in the open market.

Consultation

7. The operators in PCWAs and the relevant trade associations were consulted in July, August and October this year. The proposed tender arrangement will largely address their concern of relocating to other regions. At the time of consultation the majority of the operators expressed no objection to the proposed tender arrangement. Some operators in Hong Kong island preferred a less restricted tender arrangement while some operators refuse to accept any tender arrangement no matter how fair and open it is.

Economic and revenue implications

8. Since there is only limited competition in the proposed tender arrangement it is not expected that the tender price will be much higher than the reserve price. Under the proposed reserve price, we will only be able to recover the cost of capital at 7.1% in the first year rising to about 8.5% in the third year of the lease.

9. It is not expected that the restricted tender proposal will have any noticeable effect on the operators'operational cost because-

  1. competition in a restricted and regional tender arrangement will be limited and the tender price is not expected to be much higher than the reserved price;
  2. the reserve price will be a fraction of the market price;
  3. the operators given a fixed term of a lease of a berth will have the freedom to manage the berthing spaces to improve the cargo throughput through better mechanisation and subletting the berthing spaces etc. These will reduce their cost and improve their profitability; and
  4. it will save the enormous expense of deploying idle vessels to monopolize a berth.

10. The increase in berthing fees to the Government will not result in any increase in cost on the consumers of goods as estimated by the Consultancy Study on PCWAs (see Annex 2) and for reasons outlined in paragraph 9.

Environmental improvement

11. The flexibility provided by our proposed regional restricted tendering arrangement will help to encourage and enable operators in the less popular PCWAs to move to other PCWAs, thus allowing those heavily under-utilized and unpopular PCWAs (e.g. Sheung Wan) to be closed down and the land returned to Lands Department for allocation to other public uses. It is also our intention to make use of the flexibility of the restricted tender arrangement to re-designate certain obnoxious or noisy berths away from residential areas to address the environmental concerns of local residents. The proposed tender arrangement therefore will not only help to introduce a degree of market force into the operation of PCWA, but it will also help to optimise land use and address some environmental concerns about PCWAs.

Target date of implementation

12. The Administration aims to call tenders by the end of 1996 and have the berthing spaces allocated by early 1997.

October 1996
[Cretender]/64-96(12)

Annex 1

The Director of Audit’s Recommendation at Paragraph 7.53 of his report No. 25 dated 27.10.1995

"To use the fee mechanism to regulate the use of the berths, allocate the right to use them by an open and competitive bidding process."

Recommendations of the Public Accounts Committee
on 7 February 1996

"Urge the administration to expedite its current review, in consultation with the barge operators, with a view to devising an open, fair and economically viable system for the allocation of berthing spaces in PCWAs. Moreover, the new system should be capable of :-

  1. removing the irregular and unlawful activities currently in existence;
  2. improving the efficiency and utilization of the under-performed PCWAs; and
  3. preventing monopolization of the cargo handling trade."

Annex 2

Extracts of the Consultancy Study titled "Financial viability study on improved management and operation of public cargo working areas" by Coopers and Lybrand

"The net impact of the additional costs on the final consumers of the goods, be these local residents consuming imports, or foreign consumer consuming Hong Kong’s exports, will also tend to be small, given that the total PCWA charges only represent less than 1% of the value of cargo handled. Taking this into consideration and the fact that less than 11% of Hong Kong’s foreign trade cargo passes through the PCWAs, even a doubling of the PCWA tariff will have negligible impact on Hong Kong’s export competitiveness, or on the cost of Hong Kong’s imports. The impact on general inflation, if at all, will hardly be noticeable."

Last Updated on 14 August 1998