Cheung Kong's Drilling for Oil Street
12 January 2000
In his Mar-99 budget speech, Financial Secretary Sir Donald Tsang announced two projects which were to be awarded to companies respectively controlled by Mr Li Ka Shing and his son, Richard Li, in both cases without tender. You all know about the Cyber-port residential-cum-office development, being developed by Pacific Century Group, and we won't repeat the details here. Announcing the second project, Sir Donald said:
"the Town Planning Board has given in-principle approval to a cruise terminal development at North Point proposed by a private sector developer."
This followed the Town Planning Board's draft outline zoning of the site and its surroundings to "Comprehensive Development Area" in Feb-99 to facilitate the plan. The cruise ship terminal was to be built by Mr Li senior's Cheung Kong (Holdings). While a small portion of the land which was needed is already owned by the company and/or its partners, the bulk of the land is owned by the Government. This piece of waterfront land, currently used to land containers, was probably originally reclaimed when the Island Eastern Corridor expressway was built, as the road runs on stilts across the middle of the plot. So we'll call it the "Corridor Land". The pier was to extend out from the waterfront North edge.
After the controversy over awarding the vast tract of land needed for the Cyber-port property without tender, the Government has backed away from the cruise terminal project. 17 objections to the zoning plan were recorded, and the Town Planning Board in Nov-99 amended the plans reportedly to remove the pier.
What they really want
Stripped of the pier, the real motive for proposing the project is now transparent. Cheung Kong's land of some 30,000 sq ft (which involves a godown site reportedly owned by the private Fook Lee Group) was to be combined with the 90,000 sq ft of Corridor Land. Then the combined 120,000 sq ft of land, at a plot ratio of 15 times, would allow a vast 1.8m sq ft of development including a 79-storey hotel tower, the tallest in Hong Kong. Without the Government land, Cheung Kong's site only permits 450,000 sq ft of development, not enough for a mega-tower.
To be practical, tall towers must have a big enough "footprint" to leave a decent amount of floor space on each level after taking out the core for the larger number of elevators and ducting needed to service the building. The higher you go, the more inefficient the buildings become.
Bring on the artists
To the East of the proposed hotel site, on the other side of Oil Street, stands the old Government Supply Depot which in the last year or two has been granted on a peppercorn rent to a community of artists. They are now having to move out as the Government plans to sell that site soon (by way of tender, thank goodness). Of course, the artists are not happy about having to move, but then that was the deal, temporary accommodation for heavily-subsidised rent.
In what we must commend as a masterpiece of cynical PR, Cheung Kong is proposing to build some facility (or perhaps just open space) for the artists on the Corridor Land, and claims that is why it wants the land. Never mind the fact that 90,000 sq ft of land brings with it the right to add 1.35m sq ft (15x the land area) to the hotel project. Victor Li, Deputy Chairman of Cheung Kong was quoted in the Hong Kong Standard on 10-Jan-00:
"That [corridor] piece of land is not for building the hotel. The land that we intend to build the hotel on is our own piece of land."
He said that if Cheung Kong was given the Corridor Land then it would be preserved for use of local artists and would not be a profit-making venture:
"We don't want to waste that [Government] piece of land... we hope that there will be a place for local artists to work beside the harbour."
So long as it's on our land...
The Bigger Picture
If Cheung Kong is able to buy the Corridor Land for its hotel project, then it becomes the prime candidate to win the tender for the Supply Depot site on the other side of Oil Street. This vast site will allow another 1.32m sq ft of gross floor area. On the eastern side of the Supply Depot stands the Electric Centre, owned by Hongkong Electric which is also controlled by Hutchison, in turn controlled by Cheung Kong. So the Supply Depot would have Cheung Kong-related sites on two sides and harbourfront on another. The whole area could become a Cheung Kong project. Nothing wrong with that, but they should compete for it and pay a fair price. Mega-projects which bring sites together also bring synergies such as air-bridges, road planning and shared car parks between the towers. Take a look at what we mean in this map. The depot site is also close enough to Fortress Hill MTR for direct connection to the station.
Therefore the strategic nature of the Corridor Land makes it even more important that the enlarged hotel site should fetch an open market price, otherwise the Government may find itself with reduced proceeds when it eventually tenders the Supply Depot site.
We propose a fair solution
Cheung Kong's request is not like buying a small piece of land to add on to an existing site, perhaps to assist traffic planning. There are precedents for the Government selling an old lane or a nullah to a developer to allow for more rational development in the public interest. But in nearly every case the additional land is equal to a small fraction of the land already held by the developer. In this case it is just the opposite - Cheung Kong and partners apparently only have a quarter of the land they need.
It is not valid to argue that with a dual carriageway slicing through it, the Corridor Land on its own is of much less use than a vacant site. That's like arguing that the wheels on a bicycle are of no value. We are talking about putting the wheels on Cheung Kong's bicycle here.
The fairest way to resolve the matter would be for Cheung Kong and the Government to pool the godown site with the Corridor Land and then the whole, enlarged site would be auctioned or tendered to the highest bidder, with the proceeds split according to land area. Cheung Kong would be free to bid, but at least this way the Government would get the full accommodation value of its share of the land from the open market. That is transparency, and that is what Hong Kong needs if it is to repair the damage caused by the Cyber-port award.
Not again!
This would not be the first time that the Government has struck a private deal with the Cheung Kong group in order to allow a mega-tower to be built. On the site of the old Hilton Hotel in Central now stands the Cheung Kong Center, better known as "The Box the Bank of China Came In" for its imaginative architectural features.
This monolith was only made possible because the site area was expanded when the Government sold the adjacent Beaconsfield House (one one side) and a car park on another side to Hutchison in 1996. The car park, old government offices and post office on the site were demolished, creating the empty space you see on this map, (soon to be landscaped) and the 15x plot ratio allowed the 62-storey tower of 1.26m sq ft to be built.
If Hong Kong is to regain its image as a free and fair economy then it needs to get away from sweetheart deals with major developers. Tell Cheung Kong it's no-go unless they agree to put the enlarged site (the godown plus the Corridor Land) out to tender. And as for the artists, we are sure the Government will find them some other unused space (perhaps at Kai Tak) but they should not be abused as emotive pawns in the land game.
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