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General

Key ports

Which are the key ports in your jurisdiction and what sort of facilities do they comprise? What is the primary purpose of the ports?

The key port in Hong Kong is the Port of Hong Kong (HKP), which currently features the Kwai Tsing Container Terminals (KTCP) - nine container terminals in the Kwai Chung-Tsing Yi basin - located in the north-western part of Victoria harbour. KTCP handles the majority of container traffic. The River Trade Terminal (RTT) in the west of Tuen Mun handles the consolidation of container, break bulk and bulk cargo shipped between HKP and ports in the Pearl River Delta. In addition, there are mid-stream facilities and services offering cheaper handling rates than the container terminals, but only able to accommodate smaller vessels and at lower service quality.

Bulk-handling facilities for coal and oil are provided at the power-generating stations at Tap Shek Kok in Castle Peak and at Po Lo Tsui on Lamma Island.

There are six public cargo working areas (PCWAs) that handle the transfer of cargo between vessels and shores, and cargo to and from Pearl River. In addition, there are eight dangerous goods and 13 general-purpose anchorages providing temporary berthing spaces for vessels.

HKP has long been a multimodal transhipment hub for the importing and exporting of cargo to and from South China, and an ocean transhipment hub for Asian cargo. This last segment has become increasingly important for HKP in recent years, especially as its role as a gateway for South China has come under competition from other ports in South China.

Reform

Describe any port reform that has been undertaken over the past few decades and the principal port model or models in your jurisdiction.

There has not been any radical port reform in recent years. Hong Kong’s relatively new Competition Ordinance is possibly the only significant ‘reform’ in recent years, since it is intended to prevent monopolies and cartels, and does cover all industries, including the maritime industry and HKP. Other changes have focused on the administration of the Marine Department, relating to issues such as port safety measures and operational procedures.

As noted in question 30, a new government entity, the Maritime and Port Board, was formed in 2016 by merging the Maritime Industry Council and the Port Development Council. However, this entity is primarily advisory and hence has relatively little responsibility - for example, it has no control over planning port land use or its regulation. It is also similar to its predecessor, the Port and Maritime Board, which was in operation during the early 2000s.

State development policy

Is there an overall state policy for the development of ports in your jurisdiction?

Since the opening of the first container terminal, the policy of Hong Kong’s government has been that the funding and provision of port facilities and services should be market driven. Hong Kong is unusual among the world’s larger ports in that the government plans the development of port facilities and administers port operations without a statutory port authority to provide an interface between government departments and the private sector operators. The government’s Marine Department is responsible for statutory functions, such as port safety, and charges for certain ancillary facilities. Responsibility for the planning and timing of new facilities falls under the Transport and Housing Bureau (THB).

Most of the maritime facilities (channels, breakwaters, typhoon shelters, anchorages, mooring buoys and navigational aids, etc) are financed and constructed by the public sector. Maritime support operations are undertaken by the private sector wherever possible. All major land-side facilities are financed, constructed and operated by private sector operators under long-term ground and seabed leases. The government seeks to ensure a measure of internal competition between operators to ensure efficiency and regulate charges, and has sought to do this by adopting different approaches to the award of concessions for new facilities (see below and question 15). Terminal operators have freedom to set charges as they see fit.

The Hong Kong model lies between the purely private-sector ports, such as Felixstowe, UK, and the landlord ports, such as Rotterdam, the Netherlands, in which the government plays a far greater role in the financing and construction of terminal facilities. Ownership of both the seabed and land in Hong Kong is vested in the government. Therefore, in strict terms, Hong Kong is a landlord port, given that ultimate ownership remains with government. However, conceptually it is more useful to regard it as distinct from the subset of landlord ports seen in other locations.

The government collects rates (as per other businesses), but there is no revenue share as is sometimes seen at landlord ports.

The RTT is operated under a long-term lease to 2047. The land sites that support mid-stream operations are operated by the private sector. The majority are operated under short-term tenancies and the remainder under longer-term leases. PCWAs are managed by the government’s Marine Department. Over 100 operators use the facilities on short-term leases (usually three years).

The timing of new capacity is determined by the government through a ‘trigger-point mechanism’ that seeks to ensure that new terminals become available as current terminals reach capacity. Thus, the government seeks to avoid generating substantial excess capacity.

In October 2014, THB commissioned a Study on the Strategic Development Plan for Hong Kong Port 2030 (HKP2030) to guide port development policy and plan investment for future port facilities and related infrastructure. As per the earlier Hong Kong Port 2020 study, HKP2030 recommended better use of existing infrastructure, increasing the competitiveness of the Hong Kong Port and enabling it to adapt to market trends. Recent planning and analysis has indicated that a new terminal, Container Terminal 10 (CT10), would not be financially nor economically viable (see question 30).

Green ports

What ‘green port’ principles are proposed or required for ports and terminals in your jurisdiction?

Ports and terminal activities are regulated by local environmental legislation. Specifically, the Shipping and Port Control Ordinance (Chapter 313) governs air and water pollution caused by vessels and any other person.

All project planning and development in Hong Kong must comply with environmental impact assessment procedures to prevent environmental problems and to ensure all environmental factors are taken into consideration. Public consultation sessions are also conducted during the procedures. Strategic environmental assessment may be conducted on major proposals. Container terminals are considered to be ‘designated projects’, which are subject to statutory environmental impact assessment (EIA) process, and require environmental permits, and therefore approval from the relevant environment protection authority, for their construction and operation.

For some years, the more forward-thinking shipping lines using HKP have been promoting the need for ships to use lower sulphur content bunker especially when close to shore or are at port, and for the government in Hong Kong (and Mainland China) to ‘get out ahead of the issue’ and introduce regulations in a timely and uniform manner, but also in such a manner that HKP does not suffer at the expense of neighbouring competitors which do not enforce similar standards.

The Air Pollution Control (Ocean Going Vessels) (Fuel at Berth) Regulation (Chapter 311AA), which took effect on 1 July 2015, requires all ocean-going vessels to use fuel that is compliant with the regulation while at berth in Hong Kong. It imposes a series of obligations that require the owner, the master, and the agent of the vessel to use fuel with low sulphur content and to keep proper record of bunker deliveries.

The government of China (PRC) has announced the creation of three Emission Control Areas (ECAs) covering South China: the Pearl River Delta, Yangtze River Delta and Bohai Rim. Within these ECAs, which currently do not include Hong Kong, vessels must use fuel with a sulphur content not exceeding 0.5 per cent by weight starting from 1 January 2019. Hong Kong will align its regulations accordingly. The International Maritime Organization (IMO) decided to introduce a global 0.5 per cent limit from 1 January 2020. Therefore, in effect the PRC measures simply bring forward the 0.5 per cent requirement by 12 months. However, the PRC government also announced that it would evaluate the effectiveness of its ECAs to confirm whether to subsequently tighten the sulphur content to 0.1 per cent, extend the geographical scope of the ECAs or introduce further control measures.

Legislative framework and regulation

Development framework

Is there a legislative framework for port development or operations in your jurisdiction?

See questions 2, 3 and 15.

Regulatory authorities

Is there a regulatory authority for each port or for all ports in your jurisdiction?

See questions 2, 3 and 15.

What are the key competences and powers of the port regulatory authority in your jurisdiction?

See questions 2, 3 and 15.

Harbourmasters

How is a harbourmaster for a port in your jurisdiction appointed?

HKP does not have a harbour or port authority (see above). The Director of Marine Department is appointed by the Hong Kong government. No vessel is allowed to enter Hong Kong waters without the permission of the Director of Marine Department.

Competition

Are ports in your jurisdiction subject to specific national competition rules?

Ports in Hong Kong are not subject to any specific competition rule. The recently introduced Competition Ordinance for Hong Kong does apply to ports and shipping.

Tariffs

Are there regulations in relation to the tariffs that are imposed on ports and terminals users in your jurisdictions and how are tariffs collected?

Pursuant to Part VIII of the Shipping and Port Control Ordinance, the Director of Marine Department has the power to collect port dues from the owner, the owner’s agent and the master of every vessel that enters any port or other part of the waters of Hong Kong, or which uses any port facility.

In addition, each of the terminal operators can impose its own fee on terminal users (primarily shipping lines). There is no specific price regulation of container terminal fees or charges.

Are there restrictions relating to the currency applied to the tariffs or to any fees that are payable by a port operator to the government or port authority? Are any specific currency conditions imposed on port operators more generally?

No, there are no currency restrictions applied to any such tariffs or fees. Sums payable to the government (including taxes, rents and fees) are normally paid in Hong Kong dollars. Owing to the ‘peg’ that links the HK dollar to the US dollar, the US conversion rate is also often stated for user convenience, despite all fees being primarily listed in Hong Kong dollars. See, for example, the fees on the Marine Department website: www.mardep.gov.hk/en/pub_services/fees.html.

Note also that under the new (effective 16 July 2018) Cross Boundary Movement of Physical Currency and Bearer Negotiable Instruments (CBNI) Ordinance (Chapter 629), there are now greater restrictions on cross-border movement of large quantities of any physical currency into and out of Hong Kong. Under this new Ordinance, an advanced electronic declaration of the CBNI must be made to the Customs and Excise Department if HK$120,000 (or equivalent) is being imported or exported.

Public service obligations

Does the state have any public service obligations in relation to port access or services? Can it satisfy these obligations through a contract with a private party?

As noted in question 2, the government would provide infrastructural support (eg, access roads, drains and public services). The government can satisfy these obligations by outsourcing them to third party contractors via a public tender process.

Joint ventures

Can a state entity enter into a joint venture with a port operator for the development or operation of a port in your jurisdiction? Is the state’s stake in the venture subject to any percentage threshold?

There is no specific legislation in place that would prevent the government from entering into a joint venture with a port operator for the development or operation of a port in Hong Kong. The Competition Ordinance, which regulates joint venture activities, does not bind the Hong Kong government. Given the private sector-led model in Hong Kong, it is uncommon for the government to participate in the development and operation of a port. (See question 14.)

Foreign participation

Are there restrictions on foreign participation in port projects?

There are no restrictions on foreign participation in port projects. DP World and PSA have both invested in terminals. Moreover, China Ocean Shipping Company is currently the joint venture operator of Terminal 8. Its majority shareholder is the China State-Owned Assets Supervision and Administration Commission, which is a government entity under China.

Public procurement and PPP

Legislation

Is the legislation governing procurement and PPP general or specific?

The legislation governing procurement and public-private partnerships (PPP) is general in the sense that no specific legislation covers PPP. There is no general enabling framework or legislation in Hong Kong, similar to the UK.

Constitution

For 50 years (from 1997-2047) the doctrine of ‘One Country, Two Systems’ applies to Hong Kong. This doctrine is set out in the Basic Law of the Hong Kong Special Administrative Region of China (Basic Law). Article 12 makes it clear that Hong Kong is a local administrative region of China, which shall enjoy a high degree of autonomy and comes directly under the Central People’s government. Article 106 of the Basic Law provides for Hong Kong to have independent finances, and article 110 states that its monetary and financial systems shall be prescribed by law.

As regards ports in particular, article 127 of the Basic Law states that ‘[p]rivate shipping businesses and shipping-related businesses and private container terminals in the Hong Kong Special Administrative Region may continue to operate freely’. Article 124 allows the government of Hong Kong Special Administrative Region to ‘on its own, define its specific functions and responsibilities in respect of shipping’.

Procurement laws

The Public Finance Ordinance (Chapter 2) provides for the control and management of the public finances of Hong Kong. The government procurement process is governed by the Stores and Procurement Regulations (SPR), issued by the Financial Secretary under the Public Finance Ordinance. The SPR are supplemented by Financial Circulars and Financial Services and the Treasury Bureau Circular Memoranda. The SPR are applicable to stores purchased or acquired on behalf of government, excluding land and buildings, as well as services performed by firms and/or organisations for and on behalf of government and revenue contracts that generate revenue for and on behalf of government. Chapter 3 of the SPR provides the tender procedures for government procurement.

In addition, certain projects are subject to specific legislation. For example, Tung Chung Cable Car Ordinance (Chapter 577), and various tunnel ordinances contain provisions covering issues such as restrictions on assignment or disposal of rights and obligations, restrictions on mortgages and charges, claiming damages to make good defects or upon the service provider’s failure to perform obligations, compensation to the service provider for added value, control over change in equity ownership and shareholding, etc.

Government procuring entities

Construction services are procured by works departments, under the overall supervision of the Development Bureau. In addition to giving general guidance and technical advice on tendering procedures and contract administration matters in respect of works contracts, the Development Bureau maintains lists of public works contractors and a central performance reporting system of public works contractors and provides support for financial vetting where necessary.

Subject to any relevant legislation in any particular situation, the government has extensive constitutional and common law powers to enter into commercial contracts, including PPP contracts. However, the government retains its basic accountability and responsibility to the public for the delivery of public services. In addition, the government may have a continuing, non-delegable duty of care to recipients of certain services provided by private companies - particularly those recipients in a position of vulnerability, to whom government owes a duty of care (eg, the Housing Authority or schools). This non-delegable duty of care may arise at common law or under legislation.

Therefore, before executing PPP contracts, the relevant legislation needs to be checked. Sometimes enabling or amending legislation may be required. For example, Hong Kong’s Legislative Council debated the need to create new primary legislation for the Kai Tak Cruise Terminal (KTCT), which was eventually passed as the Kai Tak Cruise Terminal Ordinance (Chapter 627), with one of the reasons being that, having regard to the limitations of the regulation making powers under Shipping and Port Control Ordinance (SPCO, which is defined below), it was necessary to enact new primary legislation with an express ‘fee-charging’ provision to reflect the intention for the relevant fees and charges to be collected on a commercial basis and beyond cost-recovery level. The Kai Tak project is interesting in that it was initially intended that the terminal be built using PPP, but ultimately the Commissioner for Tourism became the operator, but could subcontract to commercial operators.

As regards the selection of port operators in particular, Hong Kong has made use of a variety of approaches, including:

  • open tender;
  • closed tender; and
  • negotiated agreement (ie, private treaty).

Port-specific legislation

Legislation for the regulation of port facilities includes the SPCO (Chapter 313). Section 55 of the SPCO allows the Secretary for Transport and Housing, by order published in the Gazette, to declare any area of the waters of Hong Kong to be a port.

In 1974, the Port Control (Cargo Working Areas) Ordinance (Chapter 81) established PCWAs to meet the demand for berthing spaces for barges to load and unload containers and other cargoes taken to and from ocean-going vessels. Though before 1998 berths were allocated on a first-come-first-served basis under a permit system, the berths were then allocated through restricted tender to operators by fixed-term agreements. Unallocated berths were then distributed by open tender, and re-tendering was carried out to re-allocate the PCWA berths upon the expiry of the relevant agreements. With the first tendering exercise taking place at the end of 1997, berths were allocated for a term of three years, and the monthly fee was adjusted annually. The term was extended to five years in the tendering exercise of 2011. Currently, six PCWAs remain in operation:

  • Western District;
  • Stonecutters Island;
  • Chai Wan;
  • Rambler Channel;
  • Tuen Mun; and
  • New Yau Ma Tei.

Security arrangements for port facilities are covered by the International Ship and Port Facility Security Code (ISPS Code), and the Port Facility Security Plan (PFSP), as implemented in Hong Kong from 2004, through the Merchant Shipping (Security of Ships and Port Facilities) Rules (Chapter 582A). The ISPS Code was issued by the International Maritime Organization (IMO) and is an amendment (1988) to the international Safety of Life at Sea Convention (1974) on minimum security arrangements for ships, ports and government agencies. Having come into force in 2004, in response to the terrorist attacks on 9 September 2011 in the US, the ISPS Code requires that contracting governments, local administrations and the shipping and port industries cooperate in detecting security threats and taking preventive measures against security incidents. There are 33 designated port facilities in Hong Kong, including:

  • container terminals;
  • oil terminals;
  • river trade terminals;
  • cross-boundary ferry terminals;
  • passenger terminals;
  • shipyards; and
  • power station jetties.

A PFSP must be prepared for each designated port facility based on its security assessment. The designated authority (namely the Director of Marine) is responsible for examining the security assessments and PFSPs, issuing the statement of compliance, annual audits and renewing certificates. In compliance with the ISPS Code, all designated port facilities are required to have security exercises and drills carried out regularly.

Container terminal operators must also comply with the laws and regulations in respect of dangerous goods, which include requirements to maintain records of dangerous goods. For example, terminals must be gazetted as an approved container terminal where dangerous goods may be loaded and discharged, and freight containers containing dangerous goods may be stored. In addition, container terminal operators must apply for environmental permits for the construction or operation of container terminals under the EIA Ordinance.

Further, there are various general operating licences in Hong Kong that may be required including, among others:

  • general bonded warehouse licences to store dutiable goods and licences to deal with controlled chemicals from the Customs and Excise Department;
  • licences to store dangerous goods from the Director of Fire Services;
  • licences to handle cargoes containing radioactive substances from the Radiation Board;
  • operating licences from the Marine Department for certain vessels;
  • radio system and radio paging licences from the Telecom-munications Authority to use radio communications apparatus; and
  • waste production and disposal licences from the Environmental Protection Authority.

In addition, the Hong Kong and Kowloon Wharf and Godown Company Limited By-Laws (Chapter 1023) Ordinance (and subsidiary legislation) and the KTCT Ordinance (Chapter 627) both cover access and various prohibitions, (eg, entering and leaving without permissions, smoking and nuisances).

Proposal consideration

May the government or relevant port authority consider proposals for port privatisation/PPP other than as part of a formal tender?

Section 300(a) of the SPR lists the exceptions where a separate procedure other than a formal tender shall apply. This includes contracts not exceeding the quotation limits of HK$1.43 million for stores and services as well as revenue contracts, and HK$7 million for services for construction and engineering works. In addition, private treaty grants, exchanges, extensions and short-term tenancies of land do not require to go through a formal tender process (see below).

Joint venture and concession criteria

What criteria are considered when awarding award port concessions and port joint venture agreements?

The supply of container terminal and port facilities are controlled by the Hong Kong government. As noted in question 3, THB conducts research on a regular basis to provide guidance on whether new terminals or port facilities are needed. To date, the timing of new capacity has been determined through a ‘trigger-point mechanism’ that seeks to ensure that new terminals become available as current terminals reach capacity. Through this approach, the government has also sought to avoid creating substantial excess capacity.

The government has used a variety of arrangements when tendering new terminals, including open tender and negotiated agreement (ie, private treaty), however the fundamentals of pushing the full development costs and risk to the private sector have remained, and due regard for the level of up-front payment (‘land premium’) that bidders were willing to offer - noting that in Hong Kong there are no revenue share agreements between terminal operator and the government, where bidders might seek to differentiate their tenders. The government has used a variety of criteria during tender processes. For example, the tender for CT8 sought to bring in new players from Mainland China. It was awarded under a Private Treaty Grant in 1990 to a consortium involving COSCO.

Despite calls from some parties for the government to take action in the face of intense competition from neighbouring ports and fund the capital costs of CT10, it is very unlikely that the government will change what has been an extremely successful procurement model. Notwithstanding the substantial funds available in the government’s Capital Works Reserve Fund, it is reasonable to assume that if new terminals were to be tendered, the development costs and risk would continue to be borne by the private sector.

Model agreement

Is there a model PPP agreement that is used for port projects? To what extent can the public body deviate from its terms?

There is no model PPP agreement that is used for port projects. All container terminals in Hong Kong are privately financed and operated.

Approval

What government approvals are required for the implementation of a port PPP agreement in your jurisdiction? Must any specific law be passed in your jurisdiction for this?

See questions 3, 5 and 13.

Projects

On what basis are port projects in your jurisdiction typically implemented?

See earlier answers.

Term length

Is there a minimum or maximum term for port PPPs in your jurisdiction? What is the average term?

Terminal leases run to 2047, the end of the Basic Law as agreed between China and the United Kingdom when control of Hong Kong reverted back to China in 1997.

On what basis can the term be extended?

See question 21.

Fee structure

What fee structures are used in your jurisdiction? Are they subject to indexation?

Port dues and fees for various items administrated by the Marine Department are listed in the 13th Schedule of the Shipping and Port Control Regulations (Chapter 313A). Amendments to fee structures are required to have the approval from the legislative council. Charges the terminal operators are determined by each operator based on market rates. The government collects rates (as per other businesses).

Exclusivity

Does the government provide guarantees in relation to port PPPs or grant the port operator exclusivity?

No, but it is expected that the government will neither trigger the development of new facilities without adequate forecasted growth, nor subsidise new, competitor facilities (ie, financing and operations would remain under the private sector).

Other incentives

Does the government or the port authority provide any other incentives to investors in ports?

There are no such direct incentives, tax holidays or rebates.

However, in order to enhance competitiveness and encourage investors, Hong Kong has been attempting to reduce inland transport costs and levies. The Hong Kong Trade Development Council estimates that there are approximately 22,000 inward vehicle crossings into Hong Kong per day. This is expected to increase with the opening of the Hong Kong-Zhuhai-Macau (HKZM) road link, although the main increase will probably be for trucks carrying air cargo between Hong Kong International Airport and the West Pearl River Delta (PRD), rather than trucks carrying maritime cargo. Cross-border transportation of containers between HKP and the PRD hinterland by truck has been in decline for several years, primarily owing to regulatory issues (eg, cross-border licensing and the requirement to use Hong Kong drivers), which have inflated costs. The opening of the HKZM link will not alleviate these regulatory impediments.

In 2012, the government also introduced a three-year Port Facilities and Light Dues Incentive Scheme. This was put in place to ensure lower sulphur emissions; ocean going vessels that switched to low sulphur marine fuel while at berth could enjoy a 50 per cent reduction in lightering facilities and port dues. To maintain the competitiveness of Hong Kong’s port, the scheme was extended up to 31 March 2018.

Brownfield sites have long been used for the conversion of agricultural land into low-cost storage and port back-up facilities. The on­going use of brownfield sites in the New Territories reflects the increasing demand for cheap and flat land sites to be used as port back-up facilities, especially owing to the expansion of cross-boundary trade within Hong Kong. There has been an increase in the usage of brownfield sites since the controversial and prominent case of Melhado (Attorney General v Melhado Investment Ltd (1983) HKLR 327), which approved the use of agricultural land for other purposes.

The Melhado judgment stated:

The use of the land as listed in the schedule to the Crown lease was descriptive only. The purpose of the schedule was to identify the lands to which the lease related. If the schedule had been intended to be other than descriptive it would not have been necessary to include in the body of the lease restrictions on building without a licence. There was no implied covenant of the type contended for. It was unnecessary to express the general restriction on building.

Hence, from this judgment came the enabling language permitting the use of agricultural land for a variety of other purposes, although significant environmental town planning approvals hurdles remain. See also question 26.

Finally, a further benefit for port investors in Hong Kong is the possibility of access to the PRC market via the Mainland and Hong Kong Closer Economic Partnership Agreement. This gives Hong Kong Service Suppliers greater flexibility and more preferential treatment when accessing the Mainland’s logistics market.

Port development and construction

Approval

What government approvals are required for a port operator to commence construction at the relevant port? How long does it typically take to obtain approvals?

Pursuant to the Environmental Ordinance, port development projects must follow the Environmental Impact Analysis process and also obtain environmental permits before work may begin.

Hong Kong has generally enjoyed a good reputation for quick delivery of major infrastructure projects, albeit slower than jurisdictions with less environmental protection and/or stakeholder engagement. The concession for the most recent terminal, CT9, was agreed in August 1998 and the first berth began operations in July 2003.

Port construction

Does the government or relevant port authority typically undertake any part of the port construction?

Under the private ownership model, the government would only provide infrastructural support, such as land, access roads, drains and public services in the port area. The government is currently dredging the Kwai Tsing Container Basin and its approach channels from 15-17 metres to allow ultra-large container ships port access at all tides. This is expected to be completed by 2020.

Does the port operator have to adhere to any specific construction standards, and may it engage any contractor it wishes?

Except as may be prescribed by the relevant legislation and agreements, there are no mandatory specific construction standards that port operators must comply with. However, the Port Works Design Manual (the Manual) prepared by the Civil Engineering Office of the Civil Engineering Department, offers non-mandatory guidance on the design of marine works and structures normally constructed by the government of the Hong Kong Special Administrative Region. Such works and structures include:

  • public piers;
  • ferry piers;
  • dolphins;
  • reclamation;
  • seawalls;
  • breakwaters;
  • pump houses;
  • beaches; and
  • associated marine facilities.

The Manual consists of five separate volumes. Part 1 mainly covers design considerations and requirements that are generally applicable to various types of marine works. Parts 2 to 5 are concerned with specific design aspects of individual types of works, including piers, dolphins, reclamation, seawalls, breakwaters and beaches.

Additionally, the Hong Kong Planning Standards and Guidelines is a government manual of criteria for determining the scale, location and site requirements of various land uses and facilities and applied in planning studies, preparation/revision of town plans and development control.

As to whether the port operator is free to engage any contractor it wishes, this very much depends on the relevant legislation and agreements; some specifically prohibit or require consent for work to be subcontracted or delegated. For example, there might be a tenancy agreement between the government and a terminal or port operator pursuant to which the operator may operate and manage the terminal or port (or specified parts thereof) on a commercial basis and that agreement might contain restrictions or specifications.

To the extent that there are no such legislative or contractual restrictions, port operators can engage any contractor they wish provided that the contractor has all the licences and the relevant approvals from the government to carry out the contracted work.

What remedies are available for delays and defects in the construction of the port?

This will depend on the terms and conditions of the agreement between the parties. In some cases it also depends on the relevant legislation.

Port operations

Approval

What government approvals are required in your jurisdiction for a port operator to commence operations following construction? How long does it typically take to obtain approvals?

See questions 15 and 26. Any further approvals that are required depends on the relevant legislation and agreements. Tenders, and therefore also the resulting agreements, often contain deadlines by which operations must start, failing which penalties may be incurred.

Hong Kong is one of the few major international ports in the world that does not have a port authority. Port facilities here are generally financed and operated by the private sector under a lease agreement, although the government ultimately is the landlord (with most Hong Kong leases expiring, at the latest, in 2047). The government’s role is to undertake long-term strategic planning for port facilities and to provide the necessary supporting back-up land and navigation channels infrastructure. A new government entity, the Maritime and Port Board was recently formed by merging the previous Maritime Industry Council and the Port Development Council in 2016, with the mission to formulate strategies and policies to enhance Hong Kong’s status as an international transportation centre and spur further growth in the maritime service cluster. However, this entity is primarily advisory and hence has relatively little responsibility (eg, it has no control over port land use planning or regulation).

No new port facilities have been developed in Hong Kong since the late 1990s, the last container terminal to be built having been CT9, which opened in 2003. There was a plan to build CT10; however, following a preliminary feasibility study for CT10 at Southwest Tsing Yi as well as the Study on the Strategic Development Plan for HKP2030, this plan was shelved on the basis that the project was not financially or economically viable. This was largely because the latest throughput growth forecast for the port was slower than previously projected and the yield per container was also lower: about 75 per cent of the port’s throughput comes from transhipment (barge and ocean-to-ocean), which attracts a lower handling fee and comparatively lower economic benefits than import/export shipments, which used to be a dominant portion of the port’s business. The development cost for CT10 was an estimated HK$60.9 billion (at 2011 prices), and it was expected that the economic and financial returns could not fully recover the investment costs within the 50-year evaluation period.

However, in 2013 a new luxury cruise terminal KTCT opened (see question 15) to try to capture the growth of the regional cruise market.

Typical services

What services does a port operator and what services does the port authority typically provide in your jurisdiction? Do the port authorities typically charge the port operator for any services?

See questions 2, 5, and 23.

Access to hinterland

Does the government or relevant port authority typically give any commitments in relation to access to the hinterland? To what extent does it require the operator to finance development of access routes or interconnections?

See question 27. Terminal operators have not been required to fund access routes.

Suspension

How do port authorities in your jurisdiction oversee terminal operations and in what circumstances may a port authority require the operator to suspend them?

See question 5. In addition to statutory requirements, operators will also be bound by the terms and conditions of their agreements with the government. The government obviously has a key role to play in ensuring the security of ports (see question 15) and preventing crime.

Terminal services are conducted under licences, leases, concessions, permits or certificates granted by the applicable regulatory body. Failure to comply with relevant laws and regulations may result in financial penalties or administrative or legal proceedings including the revocation or suspension of its concessions, leases or licences. There are also various environmental and safety standards applicable under Hong Kong laws and regulations. Failure to comply may result in penalties and other sanctions.

Port access and control

In what circumstances may the port authorities in your jurisdiction access the port area or take over port operations?

This will depend on the terms and conditions of the agreement between the operators and the government and the relevant legislation (if any). Also, see question 33.

Failure to operate and maintain

What remedies are available to the port authority or government against a port operator that fails to operate and maintain the port as agreed?

Common law and equitable remedies are available subject to the terms and conditions of the agreement between the parties. There may also be statutory remedies available as set out in project specific legislation.

Transferrable assets

What assets must port operators transfer to the relevant port authority on termination of a concession? Must port authorities pay any compensation for transferred assets?

Most concessions and leases granted by the government will expire, by the latest, in 2047.

As noted in question 2, the port operators are only required to return the leased land, and not other assets, to the government, unless there are additional conditions of grant in their agreement with the government.

Miscellaneous

Special purpose vehicles

Is a port operator that is to construct or operate a port in your jurisdiction permitted (or required) to do so via a special purpose vehicle (SPV)? Must it be incorporated in your jurisdiction?

There are no restrictions on the structure or jurisdiction of incorporation of port holdings, although conceivably such restrictions might form part of a tender.

There are a number of types of PPPs, each with different private-sector participation models; for example, those where services sold are to the public sector, those that are financially free-standing projects, and joint ventures. A recent successful ‘joint venture style’ PPP is the Hong Kong International Exhibition Centre (AsiaWorld-Expo) project, where the project is jointly financed and owned by three entities: the Hong Kong government, Airport Authority Hong Kong and a private-sector consortium selected through competitive international tendering.

Transferring ownership interests

Are ownership interests in the port operator freely transferable?

This will be subject to the agreement between the government and the port operator. Transfer of port ownership interests is uncommon in Hong Kong. There were relatively few changes of ownership in the 15 years after 1988, when Hong Kong International Terminals bought Terminal 2 from Kowloon Container Warehouse in 1976 and later sold it to Modern Terminals Ltd in 1988. However, in 2013 and 2014 respectively the Hutchison Port Holdings Trust (Hutchinson Ports) first bought and then part sold the entity that held T8 West terminal. In December 2016, Hutchison Ports and COSCO SHIPPING Ports Limited entered into a formal cooperation to manage the operations of five terminals (4, 6, 7, 8 and 9), including 16 berths in Kwai Tsing, Hong Kong that had been operated by Hong Kong International Terminals (HIT), COSCO-HIT Terminals (Hong Kong) (CHT) and Asia Container Terminals (ACT).

In 2013 Goodman acquired 75 per cent in Container Terminal 3 (including the ATL logistics facility) and during the previous decade, both PSA and DP World bought into Hong Kong’s container terminal assets.

The ability to freely transfer ownership interests in the port operator will depend on the terms included in the constitution of the port operator, together with the terms of any relevant joint venture or shareholders’ agreement relating to the port operator (eg, if the port operator is an SPV incorporated merely to hold the port infrastructure). There are no laws (other than possibly Hong Kong’s relatively new Competition Ordinance, which only prevents monopolies and cartels and does not have merger control provisions) restricting the transfer of shares.

Granting security

Can the port operator grant security over its rights under the PPP agreement to its project financing banks? Does a port authority in your jurisdiction typically agree to enter into direct agreements with the project financing banks and, if so, what are the key terms?

Generally, private operators can enter into agreements with project financing banks as they wish, although there may be restrictions in the relevant legislation and agreements. For example, the Tung Chung Cable Car Ordinance (Chapter 577) makes it clear that the Chief Executive of Hong Kong (currently Carrie Lam) must give prior consent to any action to assign, sub grant, underlet, mortgage, charge, allow a lien to arise on or otherwise dispose of any of its rights or obligations under the project agreement or the ordinance.

In summary, given the almost fully privatised nature of most port projects in Hong Kong, the private parties participating in the project can generally offer security over the assets of the project.

Agreement variation and termination

In what circumstances may agreements to construct or operate a port facility be varied or terminated?

This will depend on the terms of the agreement between the parties. In some cases termination and variations provisions may also be set out in the relevant legislation - eg, the Tung Chung Cable Car Ordinance (Chapter 577).

Contractual breach

What remedies are available to a government or port authority for contractual breach by a port operator?

Common law and equitable remedies are available subject to the terms and conditions of the agreement between the parties. In some cases, remedies may also be set out in the relevant legislation (eg, the Tung Chung Cable Car Ordinance (Chapter 577) which contains sections in relation to defaults and for financial penalties.

Governing law

Must all port PPP agreements be governed by the laws of your jurisdiction?

The applicable law of an agreement between the government and a private operator will normally be set out in the agreement. It is likely that the laws of Hong Kong will govern the agreement, as this likely would be the government’s preference.

Disputes

How are disputes between the government or port authority and the port operator customarily settled?

Dispute resolution mechanisms can be contained in the relevant legislation - eg, Tung Chung Cable Car Ordinance (Chapter 577) - but, more commonly, they are set out in the relevant agreements. There may be multi-tiered dispute resolution provisions requiring negotiation or mediation before escalation to litigation or arbitration.

Updates and trends

Updates and trends

Updates and trends

Hong Kong continues to have a very experienced and well-run Register of Ships (ranking fourth globally in terms of gross tonne (GT) entered), a highly regarded legal regime and business-friendly approach. Hong Kong is well known for low tax rates and ‘tax connectivity’ via double taxation arrangements. These characteristics continue to make it an attractive jurisdiction for the shipping community.

Additionally:

  • Hong Kong is a jurisdiction with a predictable and stable tax and legal environment, enshrined in the ‘mini constitution’, the Basic Law.
  • According to Nicholas Tang, Hong Kong’s Secretary for Innovation and Technology (quoted in a recent article in Asia Money magazine), approximately 80 of the world’s 100 largest banks operate in Hong Kong.
  • There is no value added tax or goods or services tax, no withholding tax on interest payments to overseas lenders or dividends to shareholders.
  • Hong Kong is the fourth largest shipping register, or flag, state in the world, with a total GT of approximately 117 million.
  • Despite being the seventh-busiest container port in the world, Hong Kong has a track record of being a good ‘global corporate citizen’ in terms of labour and environmental compliance.
  • High-speed light rail will cut the travel time between Hong Kong and Guangzhou (where COSCO Bulk Shipping is now based) to one hour.

The Greater Bay Area (GBA) development refers to the PRC government’s scheme to link the cities of Hong Kong, Macau, Zhuhai, Guangzhou, Shenzhen, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing into an integrated economic and business hub. It was first mooted in 2011, but only rose to prominence in 2017, when senior government officials, including Premier Li Keqian, began aggressively promoting the idea.

The details of the plan are yet to be fleshed out, but the potential is clear. The McKinsey Global Institute predicts that the GBA will contain the world’s largest banking cluster by 2025, generating total annual revenues of US$185 billion, ahead of Beijing, Shanghai, Tokyo and Sao Paulo. Asia Money has described the GBA as having the potential to replicate Silicon Valley. It is home to more people than the United Kingdom and has an economy larger than Australia’s. Its combined GDP - including Hong Kong and Macau - has been forecast to triple to US$4.6 trillion by 2030, overtaking Germany, reported the magazine.

The GBA development project and the Belt and Road Initiative (BRI) should enhance demand for ancillary maritime services in both Hong Kong and southern China (including transhipment and general port facilities, bunkering, chartering, finance, ship management and legal services).

At the June 2018 ‘Belt And Road Summit’, Hong Kong’s Chief Executive Carrie Lam was reported by the South China Morning Post as saying that Hong Kong is poised to ‘become part of a tech corridor of 11 cities in the Greater Bay Area’. As such, it will become a ‘powerful connection point’ to the larger BRI.

Hong Kong’s maritime community is actively seeking to position itself to maximise benefit from these projects, and established the Hong Kong Maritime and Port Board in 2016 (see question 2). The Board promotes Hong Kong as an international maritime hub and a centre for high-quality added value services.

On 4 December 2017, Hong Kong also adopted into local law - via an amendment to Schedule 2 of the Merchant Shipping (Limitation of Shipowners Liability) Ordinance (Chapter 434) - updated IMO liability limits for maritime collisions and incidents. Hong Kong now applies the ‘1996 Protocol’ limits to the 1976 Convention on Limitation of Liability for Maritime Claims. By adopting the 1996 Protocol, applicable limits were increased by approximately 50 per cent to more closely mirror the position in the UK. This was a long-awaited development of significant importance to any potential claimants against a ship or her owners, as well as to the wider shipping community (including shipowners, charterers and their insurers).

The ‘green credentials’ of the global shipping community is currently a regular topic of discussion in the maritime press. The Environmental Affairs Protection Department of Hong Kong has been cooperating with its Beijing and Guangdong counterparts to ensure that, as from 1 January 2019, vessels plying Chinese waters of the PRD Domestic Emission Control Areas (DECA) run on low-sulphur fuel not exceeding a 0.5 per cent sulphur content. The Mainland’s Ministry of Transport reports that before December 2019 it will also evaluate whether to tighten the sulphur content to 0.1 per cent, extend the geographical scope of DECAs or introduce further control measures.

Similarly, the Hong Kong legislature has been working with the Environmental Affairs Protection Department on a proposal to enact new legislation regarding low sulphur fuel emissions on marine vessels operating in Hong Kong waters, possibly with effect from as early as 1 January 2019.

These aligned and coordinated efforts are directed towards reducing sulphur emissions in and around Hong Kong a full year before the IMO’s parent regulations come into more widespread force on 1 January 2020.