Lynch updated legislators on WKCD financial status

Funding for the WKCD has been a subject of concern for many in the community. The Authority was invited to discuss financial strategy for the project in a meeting of the Legislative Council Joint Subcommittee to Monitor the Implementation of the WKCD Project on 26th August. The following are excerpts from remarks by the Authority’s CEO, Mr Michael Lynch, in laying out the Authority’s latest assessment on cost status for the Project:

• I am very conscious of this Committee’s desire to have greater certainty on the overall cost of the whole of the West Kowloon Cultural District Project and of the public interest in this issue as evidenced by some of the press reports this week. 

• The financial assessment put up in the recommendation report of the Consultative Committee on Core Arts and Cultural Facilities of the West Kowloon Cultural District (CC case) was made in 2006 based on some long term assumptions and resulted in the approval of $21.6 billion in 2008. 

• Since then, there have been significant short-term fluctuations (in terms of construction cost escalation, investment return and inflation rate).  As you noted from the newspapers, inflation ran at 5.8% in July in Hong Kong with ongoing uncertainty about the future.

• Comparing with the CC case, additional facilities/features are proposed in response to public demand in previous PE exercises (e.g. education facilities), sustainability measures across the whole site and from the design of the chosen Conceptual Plan (e.g. integrated basement structure). They have a significant bearing on the project costs and were not included in the original costing.  I have been tasked to ensure that WKCD is a project of international standing and quality in construction and design.

• It is important to note that the Foster Masterplan was chosen in March this year after the PE2 exercise which showed public preference for his plan.  It is important to recognize that the choice of the Foster Plan has a very important underlying principle.  The creation of basements and roads and all pathways and facilities underground was a distinctive feature of their plan and, if carried through, gives great benefits  in terms of public use, environmental friendliness and safe public space, while at the same time keeping the 40 hectares for public and cultural use.  This feature of their project requires more detailed analysis on the demarcation and phasing of public infrastructure works to be implemented and funded by the Government.

• The WKCD project spans decades and WKCDA may fine-tune the project development in the light of changing circumstances to best meet the evolving needs and aspiration of the arts and cultural sector and the community.

• Furthermore, the projected capital costs of the WKCD development are highly volatile and subject to further changes due to the following uncertainties, in particular –

1. the Development Plan and the phasing of core arts and cultural facilities have yet to be finalized
2. the capital costs of individual arts and cultural facilities will depend very much on (i) the outcome of design competition and (ii) the standard and specifications to be adopted in the detailed design, both of which have yet to commence; and
3. the financial position of WKCDA is vulnerable to the macro economic climate in the coming years, let alone the future fluctuations in construction costs, inflation rate and investment returns.

• WKCDA is committed to adopting a prudent financial strategy in the implementation of the WKCD project, and will make every effort to ensure the capital costs are used efficiently through suitable phasing, innovative procurement modes, value engineering, alternative revenue sources and cost-effective design, and strong project management from the WKCDA team.

• We can kick start the project in any case because unlike other similar cultural projects (with the exception of a few) in the rest of the world where fund has to be raised to get them off the ground, we are fortunate to have been given an endowment for the project which gives us extraordinary flexibility in managing our resources for the project.  

• Our approach at this stage is to develop an initial cluster of facilities that could largely meet aspirations of stakeholders; that are conducive to arts and culture development here and create vibrancy in the district.  Our proposals will be ready when we launch PE3 in a month’s time

• We will have a more realistic capital cost for the project after tendering the initial phase of facilities and we shall report to the Sub-committee on the way forward. The first project to go to tender will be the Xiqu Theatre and construction will start some time in 2013 after our Development Plan is approved by the Town Planning Board.  The design competition for some of the facilities will be kick- started this year and we will get much closer to some indicative cost position after the detailed design and cost planning.

• It needs to be remembered that to this date we are still in the planning stage based on initial demands of the arts orgainsations and the input from the PE Exercises over the last 2 years.  We will not reach certainty on the construction cost until we have chosen the individual architects and put their designs out to the construction market which may not be happening for some years.