ENG-1996 — Page 334

THE AIRPORT CORE PROGRAMME

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international air cargo, a 7.6 per cent increase over 1995. Moreover, about 33 per cent of domestic exports, 15 per cent of re-exports and 22 per cent of imports by value passed through Kai Tak.

It is expected that there will be a continuous growth in air traffic and that Kai Tak will be unable to accommodate the forecast air traffic demand. Hong Kong will stand to suffer serious economic losses if Kai Tak has to operate beyond its designed capacity for a protracted period of time.

Memorandum of Understanding

The Memorandum of Understanding (MOU), signed by the British and Chinese Governments in 1991, recognises the 'urgent need for a new airport in Hong Kong' and requires the Hong Kong Government to complete the ACP projects 'to the maximum extent possible' by June 30, 1997.

An Airport Committee was set up in accordance with the MOU under the auspices of the Sino-British Joint Liaison Group for consultations on important matters relating to the airport project that straddle June 30, 1997. In the past few years, consultations within the Airport Committee have resulted in Sino-British agreement over several important issues including the financing arrangements for the new airport and Airport Railway, the Airport Authority Bill and some major franchises at the new airport.

An Agreed Minute was signed in May 1996 allowing the AA to proceed immediately with the construction of the second runway and associated facilities at the new airport. In the same month, the Sino-British Joint Liaison Group reached agreement on the award of three ramp-handling and three aircraft maintenance. franchises at the new airport.

Implementing and Financing the ACP

The ACP is being implemented by the government, two statutory bodies wholly owned by the government, and a franchisee for the Western Harbour Crossing. The government is responsible for seven of the 10 projects, which cover land reclamations and the construction of highways and a new town near the new airport. The AA is responsible for providing, developing, operating and maintaining the new airport. The MTRC is responsible for building, financing and operating the Airport Railway. The WHC is being built, and will be operated, by the Western Harbour Tunnel Company Limited under a 30-year franchise.

The 10 ACP projects are projected to cost $156.36 billion in money of the day (MOD) values (sometimes known as out-turn prices), a reduction of $1.8 billion on the previous budget. The use of MOD values takes into account the impact of inflation on the value of the dollar while projects are being designed and built. This is particularly relevant to the ACP because most contracts have been let on a fixed-price lump-sum basis, which means that contract prices have been adjusted to cover inflation over the contract period.

In accordance with the Agreed Minute on financing arrangements for the new airport and the Airport Railway signed by the British and Chinese Governments in November 1994, the Hong Kong Government will inject equity totalling $36.6 billion and $23.7 billion into the new airport and the Airport Railway respectively. It will therefore meet a total of $111 billion, or more than 70 per cent of the total ACP cost,