Enginineer Economic and Costing - Kai Tak Cruise Terminal

Topics: Kai Tak Airport, Net present value, Hong Kong Pages: 8 (2042 words) Published: February 9, 2013
Fall 2012 EEMT 5510 Term Project
Group Number 10

Kai Tak Cruise Terminal

Executive Summary

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 redeveloped as an international cruise hub. The whole project included two sub projects, "Site formation" and "Cruise terminal and ancillary facilities building".

In project costing Inflation factor is applied as refer to government inflation index in 2009 (2%) and 2010 (2.7%). As the reason of project postponed, the total cost increased nearly one billion dollars compared to the original plan due to retendering and ASD government requirements. Within project costing considerations, maintenance cost in cash flow out is estimated to be roughly 221.9 Million per year from 2013.

For project revenue, two main factors based on fixed rent from tenant space ($13 million for ten year tenancy) and variable rent from percentages of annual gross receipt. Minimum acceptable rate of return (MARR) was also used and accounted for from Exchange Fund to calculate present worth analysis as well as benefit and cost ratio of proposed development.

Aside from economic and cost based justifications for project analysis, three main factors of social impacts are also considered in competitiveness in the cruise market, employment opportunity, as well as promoting sustainability from an environmental prospective.

Overall, the demand for worldwide passenger levels are ever growing, to promote the international image of Hong Kong, the proposal of building the Kai Tak Cruise terminal is feasible when considerations come into play for combination in socio-economic factors.


In analyzing the Kai Tak Cruise Terminal, 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 brief 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. Due to the sensitivity of limited land availability and urban density characteristics in Hong Kong, many rounds of deliberation and planning review by the government was required to finally approve the decision of developing the Cruise Terminal. Ultimately, the new Cruise Terminal facility will serve as a mix use facility to not only serves Hong Kong’s resurgence as an ecotourism destination, but a place for exhibitions and alternate venues as well.

2Cost and Revenue Analysis

2.1Project Costing and Investment
Since the fail of tender in 2008, the government decided to proceed with the Design, Build and Lease (DBL) approach. The initial investment includes two 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 construction cost in general had surged significantly in 2009 due to sharp increase of numerous materials' cost like 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 to the original plan due to price infraction. The cash flow out show as below:


The 1st pier will...
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