CONFIDENTIAL
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Financial Arrangements between the Hong Kong Government
and the Provisional Airport Authority
Introduction
1.
The purpose of this paper is to describe the conclusions of a study commissioned by the Hong Kong Government into the financing of the airport project and the outline of a draft agreement made between the Government and the Provisional Airport Authority (PAA) which sets out the proposed terms for Government funding and other support for the project.
Situation at Kai Tak
2.
Hong Kong's existing international airport at Kai Tak is wholly owned by the Hong Kong Government and operated by the Civil Aviation Department. However, certain key support services such as air cargo handling, aircraft maintenance and aircraft catering are provided by private sector companies under a variety of franchise and leasing arrangements. Revenues from these arrangements and similar arrangements for the duty free and other commercial concessions which operate within the passenger terminal accrue to General Revenue, as do revenues from aircraft landing and parking fees (aeronautical charges). In recent years revenues at the airport have been more than sufficient to cover operating expenses and have regularly exceeded the target rate of return of 15% as set by Government.
The new airport at Chek Lap Kok
3.
The new airport at Chek Lap Kok is to be operated on prudent commercial lines so that it will, like Kai Tak, cover its Own operating costs and produce a reasonable return to its shareholder - the Hong Kong Government now and the SAR Government in future. One of the main reasons for deciding to establish a separate corporate body, the Airport Authority (AA), to develop and manage the new airport was to ensure that full advantage was taken of its commercial potential. To this end, it is the intention to give the AA as much flexibility as possible to maximize revenues, so as in turn to maximise the return to Government.
4.
At the same time, the Government will continue to exercise prudent oversight of the management of Chek Lap Kok and will continue to provide a number of key services such as air traffic control, meteorological services, customs, immigration, fire services and policing. The AA will also be required to seek the prior agreement of Government before
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