Enginineer Economic and Costing Essay

The HKSAR judicature announced to the humans on 24 October 2006 that the former site of Hong Kong International Airport (Kai Tak Airport) would be redeveloped as an international sheet hub. The whole calculate included devil sub projects, Site formation and journey terminal and ancillary facilities building.In project liveing Inflation factor is utilize as refer to government inflation index in 2009 (2%) and 2010 (2.7%). As the reason of project postponed, the total woo increased nearly one one thousand million dollars comp atomic number 18d to the original plan due to re co-occurrenceing and ASD government requirements. Within project costing considerations, maintenance cost in change flow come forth is estimated to be roughly 221.9 one million million million per year from 2013.For project revenue, two main factors found on heady rent from tenant quadruplet ($13 million for ten year tenancy) and variable rent from percentages of annual gross receipt. Minimum refre shing rate of egress (MARR) was also used and accounted for from Exchange memory to calculate present worth summary as well as benefit and cost ratio of proposed development.Aside from economic and cost based justifications for project analysis, third main factors of social impacts are also considered in competitiveness in the journey market, handicraft opportunity, as well as promoting sustainability from an environmental prospective.Overall, the demand for worldwide passenger levels are ever growing, to farm the international image of Hong Kong, the proposal of building the Kai Tak Cruise terminal is feasible when considerations come into swordplay for combination in socio-economic factors.1BackgroundIn analyzing the Kai Tak Cruise death, 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 land that encompass 7.6 hectares with a general development cost estimate of roughly $8.2 billion.A apprize background 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. collect to the sensitivity of limited land availability and urban density characteristics in Hong Kong, many rounds of deliberation and homework review by the government was unavoidable to finally approve the decision of developing the Cruise end point. Ultimately, the recent Cruise Terminal installing will serve as a mix use facility to non only serves Hong Kongs resurgence as an ecotourism destination, nevertheless a place for exhibitions and alternate venues as well.2 represent and Revenue Analysis2.1Project Costing and InvestmentSince the fail of tender in 2008, the government decided to persist in with the Design, Build and Lease (DBL) approach. The initial investiture includes t wo sub-projects Site formation and Cruise terminal & ancillary facilities building were original estimated costing $7.2 billion based on the price in 2008. However, the twisting cost in general had surged signifi bottomlandtly in 2009 due to sharp increase of numerous materials cost akin sand and steel reinforcement ect.Finally the cost for Site formation roughly estimated as $2.30 billion with inflation factor 2% applied. This part starts from 2009 and will finish 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 around one billion difference of opinion to the original plan due to price infraction. The cash flow out show as on a lower floorpicThe 1st pier will be commenced to public in 2013 Q2 (2nd pier will be afterward 2017). Thus using 201213 FY as reference point and assume MARR to be 4.9 %, whereas the initial investment cost used after 2013 will also be calculated to the present value in 2013 for comparison. Therefore, the total initial investment of Cruise Terminal will be $8.1 billion. PW(I) = 8.1 billion (Refer to addition Table 1)beyond the initial investment, the government estimates the annual recurrent expenditure arising from site formation to be $15.5 million and from sail 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 open tender for the tenancy. The Tender Assessment Panel considered that the Worldwide Cruise Terminals Consortium (WCT)s tender had complied the tender requirements. And the Central Tender Board approved the acceptance of WCTs tender with renting particular proposition as followingWCT will pay to the govern ment a fixed Rent of approximately $13 million for the 10-year tenancy. The Government will be also received a percentage of the gross receipt of the instrument as the variable rent. The percentages of the annual gross receipt to be shared with the Government by WCT are as downstairs pic3Evaluation of Economic Viability3.1Minimum Attractive Rate of Return (MARR)To on a lower floorstand the economic viability of carrying out this project, valuation was conducted by applying the money-time relationships and the concept of Minimum Attractive Rate of Return (MARR). Average investment authorise 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 exchange value of the currency of Hong Kong. The Exchange Fund whitethorn also be used to maintain the stability and integrity of Hong Kongs monetary and financial systems, and can be invested in any securities or other a ssets to achieve investment return.According to the HKMA, the average return of the Fund was 3.5% over the last 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 bet of different time horizons.The Kai Tak Cruise Terminal ProjectAccording to the HKSAR government, the total capital investment required for the project is HKD 8156 million and the estimated annual recurrent expenditure is HKD 221.9 million. The annual income will come from a fixed rent for the 10-year operation 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 Present Wo rth method (PW)In our analysis, we first applied the Present Worth (PW) method, which is commonly used for evaluating private financed projects. Our aim is to find out the operators annual gross receipt required so that the project can be considered to be economically justified if public benefits are not included in the reckoning.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 equal 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 cut 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 cruise 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 present value (2013-2014) is HKD 8846 million (PW 0) (refer to Table 3), which also operator that the project is not economically justified when the public benefits are not included. The information 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 therefore 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 balance 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 KongSurely the government does not focus on the renting income but the overall economic benefit to Hong Kong. The project lea ds the development of the Cruise Economy which adds additional value to tourism, sell & dinning, travel trade and hotel etc. Based on the estimation from Tourism commission for latest cruise passengers expenditure data and multiplier effect, the cruise industry will bring following economic benefits to Hong Kong under different scenariosThe low growth scenario assumes growth brought by regional cruise operators developing cruise serve with Hong Kong as homeport. The high growth scenario assumes growth brought by international cruise operators developing cruise operate 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 continuous to operation till following yearTherefore, even under low growth scenario, some(prenominal) conventional and modified B/C ratio greater than 1 after the Cruise Terminal continuou s to operation over ten years, this project is worth to proceed.4Social Impacts4.1Higher competitiveness in cruise marketsCompared to strike and Singapore where the cruise terminals have been further developed, Hong Kongs cruise market would be highly restrain 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 create job opportunities in related industries including hotel, catering, shipping management, shipping supplies and insurance. It may support some 6900 to 10900 employment opportunities in 2020.4.3Environmental impactsThe terminal had obtained Platinum rating in BEAM increase Project Assessment in 2012, which means a high level achievement in three Green aspects (energy saving, quality of indoor environment, and environmental impact s to neighbors)5ConclusionFrom studies of worldwide passenger demand 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 short spectrum of the world, there is seemingly enough 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 tell that the facility does not imply with an overall 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 practicable option for Hong Kongs bright future.