Financing the Hong Kong-Macau-Zhuhai Bridge: The Public Authority Option

By
Henry C.K. Liu

 This article appeared in AToL on March 4, 2008

 

On Thursday, February 28, after more than six years of deliberation, the governments of Hong Kong, Guangdong, and Macau at long last endorsed in principle a financial scheme for a sea bridge linking the three sub-regions. The project will accelerate the economic integration of the Pearl River Delta to bring further economic growth and prosperity to all in a region that now houses close to 50 million people, about the size of New York and California combined. 

The Hong Kong-Zhuhai-Macau Bridge will be 36 kilometers long with six traffic lanes designed for a speed of 100 kilometers per hour, including a 6.7-kilometer seabed tunnel at 40 meters under the South China Sea at the mouth of the Pearl River to facilitate unobstructed ocean shipping lanes. Two artificial islands measuring one kilometer each will be built to house the two ends of the tunnel to join the bridge segments. The destination landing points of the bridge will be in the reclaimed land of Macau’s north-eastern district known as “The Pearl”, Shek San Shek Wan in Hong Kong’s Lantau Island, and Zhuhai’s Gongbei. At completion, travel from Hong Kong to Macau or Zhuhai can be accomplished in 30 minutes.

Under the agreement, Hong Kong will assume slightly over half the project’s estimated total cost of up to US$5 billion, at 50.2 percent, with Guangdong province assuming 35.1 percent and Macau 14.7 percent, proportional to anticipated macroeconomic benefits to each participating entity, such as reduction in transport costs and time, less the costs to each in building separate connecting roads to the main bridge.

A plan for financing the Hong Kong-Zhuhai-Macau Bridge has been proposed by the Transport Planning and Research Institute of Ministry of Communications of the Central Government of the People’s Republic of China and delivered to the local governments. According to press reports, all three local governments have agreed to undertake construction within their separate jurisdictions to link up to the main bridge.

It is reported that investors will be selected by public bidding. Domestic investors from state-owned companies will be selected through conditional build-operate-transfer (BOT) bidding with a 50-year operation period to collect tolls to pay off the investment with adequate returns. The successful bidders are expected will form joint ventures with foreign companies. The investment funds will be raised by those joint ventured partnerships and by the three local governments. The final cost of the undertaking will be known when the bidding process has been completed. Preliminary estimates on the projects total cost come to about US$5 billion.
 
In an August 30, 2002 article in AtoL I wrote:

“A proposal for a 15 billion yuan (US$1.83 billion) bridge linking Hong Kong, Macau and the mainland Chinese city of Zhuhai, which neighbors Macau, has sparked bickering among Hong Kong tycoons over their special interests. …

 

“Hong Kong tirelessly promotes itself as the New York of Asia. In New York, the Port Authority of New York and New Jersey, established in 1921, operates transportation facilities serving both states. It is a financially self-supporting public agency that receives no tax revenue from any state or local jurisdiction and has no power to tax. It relies almost entirely on revenue generated by its facilities' users - tolls, fees, and rents - to finance revenue bonds.

“The governor of each state appoints six members to the Port Authority's board of commissioners, subject to state senate approval. Board members serve as public officials without pay for overlapping six-year terms. The governors retain the right to veto the actions of commissioners from that governor's own state. Board meetings are public. The board of commissioners appoints an executive director to carry out the agency's policies and manage day-to-day operations. … …

“It seems natural that the governor of Guangdong province and the chief executive of the Hong Kong Special Administrative Region should put their heads together and create a “Port Authority of Guangdong and Hong Kong” to plan, finance and operate the proposed Zhuhai-Macau-Hong Kong bridge as expediently as possible and to undertake other regional plans and coordination, such as a regional air-traffic and airports plan and a regional water-transportation, rail and highway plan.

“Such an important regional project should not be left to the bickering of local special interests. There is no need to rely on the private sector to develop and finance public infrastructure. Privatization of public monopolies would only permit unnecessary private profit to keep users fees high and sap the region's cost-competitiveness.”


The reported BOT scheme (Buy, Operate and Transfer) by private tender is only appropriate for underdeveloped economies suffering from capital shortage. BOT is generally a more costly way to finance infrastructure and only used by desperate governments which do not possess sufficient credit ratings to access international capital markets on their own. The Pearl River Delta, Hong Kong and Macau regional economies, being part of the larger Chinese economy, are not faced with such problems.

China is now the biggest creditor nation in the world. It is a puzzle why this important and much needed regional infrastructure project that will yield economic benefits many folds over its cost needs to be financed with costly private sector BOT arrangements, with 50 years to collect lucrative high tolls, which will act as a drag on the regional economies. Details of the final terms from private investors on development rights of related real estate have not yet been made public at this time, but it is reasonable to expect that the public interest will be better served via the path of public authority financing.