OVERVIEW OF PROBLEMS IN OVERSEAS LAND RECLAMATION PROJECTS POTENTIAL RISKS OF LANTAU TOMORROW VISION

▪ Financial malpractices

▫ Large reclamation projects involve enormous potential interest, but some countries lack sound laws and regulations, so developers may bribe the government to change the original planning and usurp state-owned land resources. Some projects under public-private partnership have allegedly involved financial malpractices such as misappropriation of funds.

▫ For Songdo, the South Korean government and the developer have had ongoing financial disputes. The Board of Audit and Inspection said Gale, a shareholder and developer of the Songdo project, has failed to attract sufficient foreign investment, thus breaching the contract. On the contrary, Gale accused POSCO and the South Korean government of overcharging for the project and misappropriating funds. The tug-of-war between the private sector and the government has caused project delays.

▪ Vulnerable to external economic risks

▫ The Hong Kong government proposes amendments to the Foreshore and Sea-bed (Reclamations) Ordinance which will allow for “planning during reclamation”. The Hong Kong Institute of Planners notices that there are currently neither statutory nor administrative procedures which legally authorize the government to carry out reclamation, an irreversible project, earlier.

Overview Of Problems In Overseas Land Reclamation Projects Potential Risks Of Lantau Tomorrow Vision

▪ Risk of government bailout

▫ Large reclamation projects require much capital. If the government cannot bear the entire cost alone, it often finances the project through public-private partnerships. The project may be run under a self-financing basis to allay public concerns. Yet, under public-private partnership, the government may have to bear the risk, both in agreement and in practice, in case of project failure. Artificial island projects may form a bottomless fiscal black hole owing to their sheer scale.

▫ For Songdo in South Korea, although the private sector and the government share both the profit and cost together, the financial risk is borne by the government, both contractually and practically. If private developers cannot repay their debts or are unwilling to make more investments, the government may have to pour public money into the project so that it will not fall through.

▫ With regards to the failed projects around the world, large reclamation projects involve enormous uncertainties and risks and are hardly “mustwin” businesses.

3. FINANCIAL ISSUES

▪ Government has to bear the financial risk of project failure

▫ Large reclamation projects and their economic estimates are often made during economic booms. Large projects inevitably take longer to complete and, in case of economic downturn or financial crisis, they may be stalled, delayed or downscaled. For example, the reclamation in Jakarta has been suspended for more than ten years due to the Asian financial crisis in 1997. The global financial crisis in 2008 hit Dubai’s property sector hard. The construction of Jebel Ali Palm Island and World Islands was delayed, and Deira Palm Island had to be drastically downscaled.

▫ Lantau Tomorrow Vision is a project that will take several decades to complete. As a project with a long construction period, it requires vast sums of capital. Since Hong Kong’s economy may not stay strong throughout the construction, the project may become much less attractive to investors in case of recession or financial crisis. If the investment fails to bring in enough revenue to repay the debts, the project may fall through and require government bailout with public money.

▪ Increased water turbidity

4.ENVIRONMENTAL IMPACTS

▪ Polluting nearby areas

▫ In some reclamation projects, muddied sewage was discharged to the nearby waters when the seabed was dredged during construction. Particulates in the fill could be leaked to the water, making the water more turbid. For Forest City in Malaysia, seabed dredging has made the water turbid and reduced fish catch for local fishermen.

▫ Although the Hong Kong government boasts that “environmentally friendly” technologies will be adopted in reclamation, the 1,000-hectare artificial island will cover the water body and affect the ocean currents. These problems cannot be overcome by any technology. If reclamation weakens the sea waves, sediments may accumulate and cause odor and water pollution. The quality of water along the coast of nearby outlying islands may become poorer, forming ecological dead zones.