24.2.2.
On programming, HKCC submitted initial proposals with very unfocussed programming costs: their budgets were more equally allocated over channels than HCV's. HKCC made significant changes to their pro- gramming budget allocations after 28 February (and continue to do so). As a result, their revised programming budget is increased by 4% per year on average, and is more focussed on the channels they consider more impor-
tant.
24.2.3.
The consultants advise that HCV has probably under-esti- mated by 2% -3% some programme acquisition costs and both have under- estimated costs in skilled labour categories. (It is expected that either would be forced to employ more technical staff at expatriate rates than they have allowed for).
24.3. Finance
24.3.1.
HKCC has used an interest rate of 11% and HCV 10.5%. The difference of 0.5% would result in an increase of $14 million per year or $47 million peak borrowing for HCV.
24.3.2.
HKCC allows a depreciation rate on plant which may be greater than necessary: this could result in a substantial contingency sum in the longer term. HCV's depreciation rate is reasonable.
24.4. Construction Capital Costs
24.4.1.
HKCC's and HCV's estimates for the construction of the hori-
zontal portion of the CTV network differ by only 3%.
24.4.2. HCV plans to use higher-quality materials on its vertical network. HCV has also built in contingencies in labour costs.
24.4.3.
HKCC's estimate for costs of their vertical network is on the low side, even allowing for the lower quality finish. HCV's estimate for drop-cabling as four times higher than HKCC's.
24.4.4.
HCV has estimated $290 millions less than HKCC for con- struction of studio space. This is probably an under-estimate.
24.5. Sensitivity
24.5.1. The consultants have tested the sensitivity of both sets of financials against both lower-than-expected revenue and higher-than- expected costs. Both financials are found to be sufficiently robust to within a 12.5% deviation from plan. They recommend that the guaranteed equity limits of either party should be increased to provide a stronger assurance to the Government.
24.5.2. In general, the consultants advise that both bidders provide sound financial estimates and both sets of estimates indicate that the
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