PWSC(97-98)108
For discussion
on 11 February 1998


ITEM FOR PUBLIC WORKS
SUBCOMMITTEE OF FINANCE COMMITTEE

HEAD 707 - NEW TOWNS AND URBAN AREA DEVELOPMENT
New Territories North Development
Civil Engineering - Land development
87CL - Shek Wu Hui development, package 4, engineering works

Members are invited to recommend to Finance Committee -

  1. an increase in the approved project estimate of 87CL from $679 million by $269.6 million to $948.6 million in money-of-the-day prices; and

  2. the downgrading of part of 87CL to Category B, retitled "Shek Wu Hui development, package 4, remaining servicing works in area 30A".

PROBLEM

The approved project estimate of 87CL is insufficient for the works under the project. In addition, the current low demand for industrial land makes it necessary to revise the programme of servicing works for the remaining industrial sites in area 30A.

PROPOSAL

2. The Director of Territory Development (DTD), with the support of the Secretary for Planning, Environment and Lands, proposes -

  1. to increase the approved project estimate of 87CL from $679 million by $269.6 million to $948.6 million in money-of-the-day (MOD) prices; and

  2. to downgrade part of 87CL to Category B, retitled "Shek Wu Hui development, package 4, remaining servicing works in area 30A".

PROJECT SCOPE AND NATURE

3. The scope of the project comprises:-

  1. formation and servicing of areas 3, 4, 27C, 28, 29 and 30 in Fanling;

  2. construction of trunk drains in areas 27C, 28 and 29;

  3. a hydraulic model study of the River Indus; and

  4. river training works in area 30 comprising -

    1. river training for a section of the River Sutlej in area 30A;

    2. river training for a section of the river channel in area 30B connecting the River Sutlej and the River Beas to the River Indus;

    3. river training for a section of the River Indus beyond its junction with the River Beas in area 30B;

    4. the provision of bridges, box culverts, retaining walls and rural roads;

    5. the provision of a sewerage system including dry weather flow interception chambers, refuse collection points and public latrines; and

  5. training of a section of an existing river channel inside the Shek Wu Hui sewage treatment works in area 2A together with the reprovisioning of an existing bridge inside the sewage treatment works.

JUSTIFICATION

4. Since 87CL was first upgraded to Category A in 1977, we have completed the works described in items (b), (c), (d)(i), (d)(v) and (e) of paragraph 3 above and completed part of the works described in items (a) and (d)(iv) of paragraph 3 above. The remaining works under 87CL comprise mainly -

  1. the remaining servicing works in area 30A including road and drainage works;

  2. river training works in area 30B; and

  3. construction of bridges, box culverts, retaining walls and rural roads in association with the river training works in paragraph 4(b) above.

5. The current project estimate of $679 million for 87CL was last approved in July 1989 by the Finance Committee. It needs to be revised due to -

  1. an increase by $179 million at December 1996 prices to -

    1. provide $170.9 million for price fluctuation in payments due under the contracts, increased construction costs caused by reprogramming of the remaining works in paragraph 4(b) and (c) above and the associated increase in consultants’ fees and site staff costs. According to the revised programme, these works will start in May 1998 for completion in May 2001 in parallel with the completion of river training works on the downstream of the Shenzhen River in November 2000; and

    2. provide $8.1 million for carrying out mitigation measures and conducting an environmental monitoring and audit (EM&A) programme for the remaining works in paragraph 4(b) and 4(c). This programme was recommended under the Environmental Impact Assessment (EIA) study, completed in October 1997, for the entire flood alleviation works in the Indus Basin. There is, therefore, no provision in the current approved project estimate for the cost of the EM&A programme.

  2. a decrease by $14.8 million at December 1996 prices due to the proposed downgrading of the works in paragraph 4(a) above to Category B. In view of the current low demand for industrial land, we intend not to dispose of the remaining industrial sites in area 30A until 2000-01. This means there is no urgency for completing the servicing works for that part of area 30A where these industrial sites are located. Upon confirmation of the land disposal programme, we will propose upgrading the works to Category A again.

6. The factors in paragraph 5 above will result in a net increase of $269.6 million in the project estimate taking account of the inflation allowance. A summary of the reasons for the proposed increase is as follows -


Factor

Amount
($ million)


%






(a)

Specification changes


(6.7)


(4.1)


(i)

additional requirements recommended in the environmental impact assessment study

8.1





(ii)

less the value of those elements of work and associated consultants’ fees, site staff costs and street lighting to be downgraded to Category B

(14.8)




(b)

price variation - increase in cost of engineering works since the preparation of the last estimate


133.8


81.5

(c)

Others


37.1


22.6

(i)

contingencies

7.1





(ii)

consultants’ fees

6.5





(iii)

site staff costs

23.5






Sub-total


164.2

(at December
1996 prices)

100.0

(d)

Inflation allowance1

105.4





Total


269.6

(in MOD prices)

7. A comparison of the cost breakdowns of the approved project estimate (at April 1989 prices) and the revised project estimate (at December 1996 prices and in MOD prices) is at the Enclosure.

FINANCIAL IMPLICATIONS

8. Subject to approval, we will phase the expenditure as follows:-



Year


$ million
(Dec 1996)

Price
adjustment
factor


$ million
(MOD)




Up to 31 March 19972

507.9

-

507.9




1997 - 1998

8.2

1.06750

8.7




1998 - 1999

50.0

1.16358

58.2




1999 - 2000

124.0

1.26830

157.3




2000 - 2001

114.0

1.38244

157.6




2001 - 2002

39.1

1.50686

58.9

843.2

948.6

9. We have derived the MOD estimate on the basis of the Government's forecast of trend labour and construction prices for the period between 1997 and 2002. We will tender the river training and associated works under a standard remeasurement contract because the quantities of earthworks may vary according to the actual ground conditions. These earthworks include dredging of the existing river channels. The contract will provide for inflation adjustments because the contract period will exceed 21 months.

10. Excluding the part to be downgraded to Category B, we estimate the annually recurrent expenditure arising from the remaining works to be $4.614 million.

PUBLIC CONSULTATION

11. We consulted the Sheung Shui Rural Committee and the North District Board on the river training works on 8 April 1997 and 10 April 1997 respectively. Members of both the Committee and the District Board supported the proposal.

2. We gazetted the remaining river training works under the Foreshore and Sea-bed (Reclamations) Ordinance on 8 August 1997 and received no objections.

ENVIRONMENTAL IMPLICATIONS

13. In October 1997, we completed an Environmental Impact Assessment (EIA) study under 85CD "Main drainage channels for Fanling, Sheung Shui and hinterland - site investigations and consultants’ fees". This covered the main river courses of the Indus Basin including the section of the River Indus within area 30B. The study concluded that, with the implementation of the recommended mitigation measures, the environmental impact arising from the works under 87CL could be contained within established standards and guidelines. These measures include proper design to minimise concreting of the river channel bed, revegetation of open spaces within the site and restoration of fish ponds upon completion of the river training works. The Advisory Council on the Environment (ACE) endorsed the EIA report on 24 November 1997.

14. We will implement all the recommended mitigation measures in the EIA through the detailed design and works contracts and an environmental monitoring and audit programme. The estimated cost of the mitigation measures ($0.6 million) and the EM&A programme ($7.5 million) is $8.1 million. These costs have been included in the overall project estimate.

LAND ACQUISITION

15. We will resume about 11 hectares of agricultural land for the remaining river training works. This will necessitate the clearance of 15 households involving 38 people and 45 structures. The Director of Housing will rehouse the families affected in public housing in accordance with the existing policy. We will charge the cost of land acquisition and clearance, estimated at $618 million, to Head 701 - Land Acquisition.

BACKGROUND INFORMATION

16. We upgraded 87CL to Category A in December 1977 at an estimated cost of $132.16 million for site formation and trunk drainage works in areas 27C, 28 and 29 at Fanling.

17. Since the upgrading of the project to Category A, Finance Committee has approved revisions of the project estimates for 87CL as detailed below -

Time

Reasons for Revision

Revised
Project Estimate
($ million)

April 1978

- To carry out additional formation and servicing works in area 30 (part)

149.66

August 1978

- To carry out additional formation and servicing works in areas 3 and 4

280.00

- To carry out additional works for constructing roads and drains in areas 28 and 29

November 1978

- To take account of the new rate of compensation for land resumption

441.76

January 1981

- To have the outstanding balance of land acquisition cost removed from the project estimate for charging to a separate land acquisition block vote

157.70

- To carry out additional formation and servicing works for the remainder of area 30; and additional river training works for a section of River Sutlej in area 30

December 1982

- To take account of the increase in the cost of engineering works

270.00

September 1985

- To carry out additional works to upgrade the road network in areas 28 and 29

336.50

- To take account of the increase in the cost of engineering works


July 1987

- To carry out a flood protection scheme and additional formation and servicing works in area 3

394.00

- To extend the river training work in area 30 to cover a short section of the River Indus beyond its junction with the River Sutlej

- To conduct a hydraulic model study of the River Indus

July 1989

- To carry out more extensive river training works in area 30B

679.00

- To take account of the increase in the cost of engineering works


18. We have completed most of the works under the project. The remaining river training works form part of the flood alleviation works in the Indus Basin. The works will help the severely constricted River Indus and River Beas to discharge their flood waters into the Shenzhen River3. We plan to complete the remaining works in May 2001.


Planning, Environment and Lands Bureau
January 1998


1.The inflation allowance is in respect of expenditure on the project from financial years 1997 - 98 to 2001-02 (see paragraph 8).

2. This is the actual expenditure incurred on the project up to 31 March 1997.

3. The river training works for the section of Shenzhen River downstream of its junction with the River Indus commenced in May 1997 for completion in November 2000. On completion of the works, the capacity of the Shenzhen River to receive the discharge from its tributaries will effectively increase.

Enclosure to PWSC(97-98)108

87CL - Shek Wu Hui development, package 4, engineering works

A comparison of the approved project estimate at April 1989 prices and the revised project estimate at December 1996 prices and in MOD prices is as follows :-

Approved Estimate
($ million)


Revised
Estimate
($ million)

(a)

Site investigation


1.5



1.5

(b)

Engineering works


544.2



666.7

(i) remaining servicing of area 30A

11.9


0

(to be downgraded

to Category B)


(ii) remainder of project

532.3



666.7


(c)

Consultants’ fees for design and construction stages


27.2



33.1

(i) remaining servicing of area 30A

0.6


0

(to be downgraded

to Category B)


(ii) remainder of project

26.6



33.1


(d)

Site staff costs


52.8



75.0

(i) remaining servicing of area 30A

1.3


0

(to be downgraded

to Category B)


(ii) remainder of project

51.5



75.0


(e)

Hydraulic study of River Indus and site investigation


2.8



2.8

(f)

Land resumption and clearance


17.1



17.1

(g)

Street lighting


4.0



3.0

(i) remaining servicing of area 30A

1.0


0

(to be downgraded

to Category B)


(ii) remainder of project

3.0



3.0


(h)

Environmental monitoring & audit programme


0



7.5

(i)

Miscellaneous works


6.3



6.3

(j)

Contingencies


23.1



30.2

Total


679.0

(at April
1989 prices)

843.2

(at December
1996 prices)

(k)

Inflation allowance





105.4






Total


948.6

(in MOD
prices)

2. As regards (b) (engineering works), the net increase is $122.5 million -

  1. $134.4 million is the total increase in costs for the engineering works. This increase comprises -

    1. $12.1 million for meeting price fluctuation in payments due under the contracts for that part of the works completed during the period between April 1989 (when we prepared the last estimate) and September 1994, when we completed these works. As a reference, the Civil Engineering Works Index increased by about 54% during this period;

    2. $121.7 million for the increase in construction costs for the remaining part of the engineering works under the project. As a reference, the Civil Engineering Works Index increased by 85% between April 1989 (when we prepared the last estimate) and December 1996; and

    3. $0.6 million for the implementation of the mitigation measures recommended in the EIA study.

  2. the above increase of $134.4 million is partially offset by a reduction of $11.9 million due to the downgrading of the works under paragraph 1(b)(i) to Category B.

3. As regards (c) (consultants’ fees for design and construction stages), the net increase is $5.9 million -

  1. $6.5 million is the total increase in consultants’ fees for design and construction stages estimated at about 4.8% of the increase in cost of works under paragraph 2(a) above. The consultants’ fees are based on a percentage scale of the cost of construction works as laid down in the consultancy agreement; and

  2. the above increase of $6.5 million is partially offset by a $0.6 million reduction which is the pro-rata reduction in consultants’ fees due to works under paragraph 2(b) being downgraded to category B.

4. As regards (d) (site staff costs), the net increase is $22.2 million -

  1. $23.5 million is the total increase in site staff costs. This increase comprises -

    1. $10.1 million due to adjustments to site staff salaries between April 1989 (when we prepared the last estimate) and March 1997. As a reference, the salary levels of comparable ranks in the civil service, on which the salaries of the site staff are based, increased by about 100% between April 1989 and March 1997;

    2. $13.4 million due to the increase in site staff costs. This is estimated to be about 11% of the increase in the cost of the works under paragraphs 2(a)(ii) and 2(a)(iii) above. These costs are consistent with prevailing site staff costs for contracts of similar size and nature; and

  2. the above increase of $23.5 million is partially offset by a $1.3 million reduction which is the pro-rata reduction in site staff costs due to the works under paragraph 2(b) being downgraded to Category B.

5. As regards (g) (street lighting), a total of $1.0 million is deducted from the estimate due to the downgrading of the works under paragraph 2(b) to Category B.

6. As regards (h) (environmental monitoring & audit), the increase of $7.5 million is due to the environmental monitoring and audit programme required for the remaining works as recommended in the EIA study.

7. As regards (j) (contingencies), we have retained $30.2 million as contingencies for the remaining works.