Hong Kong’s construction industry is gearing itself up for a boom as work on some of the “10 Major Infrastructure Projects,” announced by the Hong Kong Special Administrative Region (HKSAR) Chief Executive Donald Tsang in the 2007 Policy Address, finally begins.

Construction Build-Up

A number of the projects — such as the Airport Co-operation, Lok Ma Chau Loop, West Kowloon Cultural District and the development areas in the Northeast New Territories—are in various stages of study and “public engagement.” Other projects are under design or beginning construction.

Detailed artwork has commenced on the 7-km-long SIL for Hong Kong’s MTR metro system, with construction scheduled to begin in 2011. The railway project will run between the Admiralty MTR Station and the south side of Hong Kong Island. Halcrow and AECOM have been commissioned to design the approach tunnels and a new interchange station as well as a stabling facility for the 17-km-long SCL railway system, which will begin construction later this year. Site investigation and preliminary design are being carried out for the Tuen Mun-Chek Lap Kok Link and Tuen Mun Western Bypass (TMWB).

Work on the XRL, HZMB and the Kai Tak Development are in full swing and—coupled with other civil-works projects—have the region’s construction industry in a frenzy that has not been seen since the Airport Core Programme of the 1990s.

Construction of HZMB started last December from the Chinese side, and Hong Kong’s Highways Dept. expects work on the Hong Kong side to commence in 2011.

Stretching the Dollar

Penta Ocean Construction Ltd. won a $170-million (HK $1.34 billion) contract for site formation work on a cruise terminal at the Kai Tak Development, while contracts for the construction of XRL continue to roll out.

In addition to these top 10 projects, the Highways Dept. recently awarded a $200-million (HK $1.55 billion) design-build contract to China Harbour Engineering Ltd. for the widening of Tuen Mun Road and a $305-million (HK $2.38 billion) contract to Gammon Construction Ltd. for the widening of Tolo Highway. At the Wan Chai Development Phase II project, which involves site formation to provide land for the Central-Wan Chai Bypass, two contracts worth a total of $725 million (HK $5.67 billion) were awarded to Chun Wo-Leader JV and Chun Wo-China Railway JV, respectively.

According to HKSAR Financial Secretary John Tsang, the government expects its capital-works expenditure to exceed $6.3 billion (HK $49 billion) for the 2010-11 fiscal year; it also expects the high level of spending to continue as more large-scale projects are started. The budget’s figure is $2.6 billion (HK $20 billion) higher than the region’s average of $3.6 billion to $3.7 billion (HK $28 billion to $29 billion) for the past several years.

The monetary situation has triggered a scramble for resources, which resulted in consultants offering commissions for staff referrals and contractors faced with demand by new recruits for a 20% to 30% rise in pay.

According to David Lau, deputy general manager in the Civil Construction Dept. of China State Construction Engineering (Hong Kong) Ltd., mobilization has become a problem as most projects are in the foundation stage with only a limited supply of piling rigs and other necessary construction equipment. China State won a spate of large-scale civil-works contracts last year, including reconstruction and improvement works on another section of Tuen Mun Road, valued at $170 million (HK $1.33 billion); construction of the Yuen Long South branch sewers; expansion of the Ha Tsuen sewage pumping station; and construction of the connection tunnel and diaphragm wall for the main pumping station at Stonecutters Island Sewage Treatment Works.

Labor costs have experienced minimal increases; however, material prices are substantially rising. For instance, the price of rebar has gone up by 6% to 10% this month compared to March’s prices. According to Lau, tendering exercises also are draining resources.

“We are over the top already with our existing team preparing submissions,” he says. “We are recruiting additional staff to make up for the shortage.”

More inflation lies ahead. Development of the Kai Tak Cruise Terminal, which was estimated to cost $923 million (HK $7.2 billion) in September 2008, is now priced at $1 billion (HK $8.16 billion)—prompting the government to seek $750 million (HK $5.85 billion) in funding this month, in addition to the $295 million (HK $2.3 billion) that was previously approved for site formation work last November.

While work on the cruise terminal began in January, another project at Kai Tak appears to have stalled. A contract for the development of a district cooling system, estimated to cost $180 million (HK $1.4 billion) in 2008, was due to be awarded earlier this year, but sources close to the negotiations revealed the parties remained stuck over the cost-benefit ratio. Conceived as a model for large-scale energy-efficiency templates for the rest of the city, the system would include two chiller plants, an underground seawater pumphouse, seawater pipeworks, chilled-water pipeworks and connection facilities. Assuming it covers 1.73 million square meters of public and private commercial space, it will have 284 Mw of cooling capacity. While all government and MTR facilities at Kai Tak will be required to use the template, for other commercial buildings the template will be optional—which option is believed to be the sticking point that has caused the standstill.

Despite these few issues, major projects are still coming online, and Hong Kong’s construction industry is on course for a building bonanza.