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Speech by Secretary for Housing, Planning and Lands on Legco motion

The following is a translation of the speech made by the Secretary for Housing, Planning and Lands, Mr Michael Suen, in response to the motion moved by Dr the Honourable Philip Wong Yu-hong on "Supporting the Conclusions and Recommendations of the Public Accounts Committee on the Development of a Site at Sai Wan Ho" in the Legislative Council today (May 17):

President,

I thank Dr Hon Philip Wong for moving the motion today. I am also grateful to Members for their valuable comments on this subject. I do not intend to repeat what the Chief Secretary for Administration has said in his speech. Instead, I would like to focus on giving an account of the progress and current position on the implementation of various improvement measures by the Government to address the recommendations put forward by the Audit Commission, the Public Accounts Committee of the Legislative Council (PAC) and the Independent Committee of Inquiry (ICI).

I wish to reiterate that we have all along been actively cooperating with the Audit Commission and the PAC and providing support to their work. We acknowledge their work and we will not change this in future. We are grateful to the PAC for examining in detail the report tabled last year by the Director of Audit on the value for money audits in respect of the development of site in Sai Wan Ho and for putting forth a number of constructive recommendations to the Government.

The Government has also been taking up this issue seriously. Following the Audit Report, we have been aware of the keen concerns of the public about the possible uncertainties in the BA's exercise of discretionary powers in the development project. In this connection, the ICI has been established to look further into the matter. The initiative was supported by the PAC and the public at the time. At that time, we have not received any comments that this action is not sensible, while we also have not heard any comments that this action would have any adverse impact on our constitutional framework. Moreover, the credibility of the ICI was well recognised.

In fact, the reports of the PAC and the ICI contain a number of similar recommendations on ways to improve the existing land development approval mechanism. In the motion moved by the Chairman of the PAC, the Government is urged to fully implement the recommendations of the PAC. I would like to take this opportunity to brief Members on the progress made by the Government in implementing the various improvement measures.

On pre-tender enquiries, the PAC recommended that the Lands Department (LandsD) should, before the close of tendering of the land sale, publicise all enquiries received in relation to gross floor area (GFA) calculation and the answers given to the prospective tenderers; and in respect of the information to be publicised for the protection of prospective tenderers, a clear definition of "fundamental ambiguity¡¨ should be provided in the Lands Administration Office Instruction of the LandsD.

I wish to point out that it has always been our objective to enhance the transparency of the land sale procedures. For this reason, the LandsD has revised the relevant internal guidelines, clearly stating the circumstances under which the information provided to prospective land sale tenderers in response to their enquiries on uncertainties about the development parameters (such as GFA, carparking requirement, provision of government/institution/community facilities) would be publicised on Government websites and in newspapers.

In view of concern over the development intensity of a site, the PAC recommended that the Planning Department (PlanD) should specify the maximum GFA for the site in the concerned outline zoning plan and update the assessment made by the Department on the requirement of public facilities provision for the district before the land sale.

The Government fully recognises the importance of having the planning intentions achieved. To meet the community's aspiration for a quality living environment, the Government is, together with the Town Planning Board, taking the initiative to progressively introduce restrictions on building heights and development intensity in the statutory town plans. Before the sale of a site, it is the normal practice of the PlanD to give advice to the LandsD on the maximum GFA of the proposed development project. To ensure that the district will be provided with sufficient public facilities for the community, the PlanD will also reassess the provision of public facilities in the district before the sale of a site, and inform the relevant departments accordingly.

The PAC also recommended that the LandsD should, where appropriate, incorporate into the lease conditions the site development requirements of the Hong Kong Planning Standards and Guidelines (HKPSG). In fact, it is the Lands D's current practice to incorporate into the lease conditions the site development requirements of the HKPSG. However, if the site development requirements relate to the provision of government/institution/community facilities (GIC facilities) but the relevant user departments cannot take up the facilities for maintenance and management due to the lack of a development programme or funding approval, after consultation with the user departments concerned, the LandsD will not require provision of such facilities under the lease conditions. The Government will then require the facilities to be provided in another appropriate development site in future.

Regarding the provision of government accommodation, the PAC recommended that the Director of Architectural Services should draw up a set of accurate design requirements and that the relevant Government departments should be notified if the Architectural Services Deparment (ArchSD) considers that implementation of the original design parameters to be included in the lease conditions was not feasible. The PAC also recommended that the Director of Lands should pursue other feasible options with the relevant Government departments to implement the GIC design requirements before the close of tendering if there are doubts about the original proposal.

In this connection, the ArchSD has reviewed the procedures for the preparation of the Technical Schedule to be included in the lease conditions. They will be adopted in the future provision of GIC facilities to ensure that the GIC design requirements are properly drawn to scale in the layout drawings for incorporation into the lease conditions of the site. If the ArchSD considers that implementation of the original GIC design parameters to be included in the lease conditions is not feasible, it will notify the LandsD or the relevant Government departments to make changes to and finalise the design parameters.

If doubts are raised by prospective tenderers on the feasibility of GIC design requirements, the LandsD will refer them to the user departments. The pursuit of any feasible alternative designs is a matter for consideration by the user departments. The LandsD will inform the prospective tenderers of the outcome of such relevant consideration and publish the relevant information before the sale of a site is successfully triggered, so that all prospective tenderers will be aware of the matters affecting the originally proposed GIC design requirements.

The PAC also recommended that the LandsD should, where appropriate, stipulate explicitly in the lease conditions of a site whether the government accommodation required would be included in the GFA calculation. If the lease conditions contain a maximum GFA clause, it is the Land D's current practice to stipulate in the lease conditions whether the government accommodation required would be GFA accountable in order that prospective tenderers can take this information into account when bidding for a site.

In so far as site classification is concerned, the PAC recommended that the Buildings Department (BD) should fully consult other related government departments prior to the sale of a site before giving advice to them.

The BD has accepted the recommendation of the PAC and it consult all relevant departments prior to the sale of a site on any factors affecting the site classification. The BD will also seek legal advice on any legal ambiguities about site classification. It has also put in place a mechanism which requires that advice on site classification provided to the LandsD prior to land sale will be subject to the decision of the Building Authority Conference only to ensure the consistency of relevant decisions.

The PAC also recommended clarifying the criteria of street for the purpose of site classification under the Building (Planning) (Amendment) Regulation 2005. We made amendments to the Building (Planning) Regulation to clarify the definition of "street" for site classification under the law to facilitate a clear classification of site so as to determine, beyond doubt, the development intensity of a site before sale. The amendment regulation came into effect on 31 December 2005.

As regards the granting of GFA exemption, the PAC recommended that the Director of Buildings should seek legal advice on unclear legal issues prior to the sale of land. In this connection, improvements have been made by the BD. For example, where thre is any unclear legal issues concerning GFA exemption, the BD will seek legal advice before giving advice to other government departments. In order to clarify whether PTT needs to be included in GFA calculation, the BD has also revised the guidelines issued to the industry to make it clear that PTT has to be included in GFA calculation unless specified otherwise under the relevant statutory outline zoning plans or there is a specific approval granted by the Town Planning Board for such exemption.

The PAC also recommended that improvement should be made on the arrangements for appointing external observers to attend the Building Authority Conference. In this regard, internal guidelines on the appointment of such external observers and their declaration of any conflict of interest have been issued by the BD, and procedures and criteria for doing so have also been established.

On the question of granting of bonus GFA, the PAC recommended that the Director of Buildings should consult and reach a consensus with the relevant government departments before he grants any bonus areas in return for the dedication of areas for public use. We are happy to accept the recommendation made by the PAC.

As the Building Authority (BA) may grant concessions not covered by lease conditions, to safeguard the Government's interest in this regard, the PAC recommended that the LandsD should stipulate, as appropriate, a maximum GFA clause in the lease conditions, and review the criteria for deciding whether or not the maximum GFA of a site should be specified. We will consider actively whether the maximum GFA should be stipulated. In the light of the PAC's views, the Housing, Planning and Lands Bureau (HPLB) has initiated a review to study whether it is appropriate to include a maximum GFA clause in all the leases of Government land in the future.

As a matter of fact, if the development intensity of a site has been specified in the OZP, the lease should have normally spelt out the maximum GFA. If, from the planning point of view, there is no need to restrict the development intensity, laying down the maximum GFA in the lease has both merits and demerits. I have clearly explained about this at the hearing of the PAC. I have also made it clear that a delicate balance has to be struck between enhancing the certainty of lease conditions and obtaining the optimum sale price and this is not an easy task. The Government will carefully consider the recommendations made by the PAC and consult the Legislative Council, the industry, and the professionals concerned and stakeholders before determining the way forward.

The PAC is also concerned how the HPLB would improve the communication and coordination among the BD, the LandsD and the PlanD. The Government concurs with the PAC on the importance of effective communication and coordination among Government departments in handling property development approval to achieve the planning intention.

The HPLB, PlanD, LandsD and BD are continuously working closely together in this aspect. The role of the HPLB is to formulate general policies on matters relating to planning, land administration and buildings. In the process of land development, the three departments play their own roles according to the policies and the relevant legislation, and at the same time keep in close contact.

There are established forums to discuss and resolve inter-departmental issues at various stages of the development process, including the District Lands Conference, Building Authority Conference and District Planning Conference. The departments will consult the Bureau for guidance on issues involving policy implications. The Bureau has also set up dedicated forums, chaired by the representatives of the Bureau, to enhance coordination among the departments, in dealing with both ad hoc and individual matters, as well as systemic issues. The Government has undertaken to continue to seek improvements in this area.

The PAC has also stressed the importance for the BA to consider the factors listed in the relevant Practice Note in his exercise of discretionary powers. Indeed, to enhance accountability and transparency when exercising his discretionary powers granted to him under the Buildings Ordinance for processing various applications, the BA has issued Practice Notes on various subjects for reference by the industry. Internal guidelines have also been issued to serve as general guidance for relevant officers.

Applications will be submitted, depending on complexity, to the committees chaired by the Assistant Directors of the BD or the BA for consideration and approval. I would like to emphasise that the BA and officers authorised by him to exercise such discretion have to act in good faith, follow the law and the criteria promulgated in the Practice Notes and take into account all factors relevant to the issue under consideration in the exercise of discretion.

We also seek to further enhance transparency. The BD has published a summary of the matters considered at the Building Committee of the department, and the decisions made, on the department's website.

We also note the views of the PAC and the ICI on the different functions and duties of the BA and Director of Buildings. I would like to give a brief explanation here. The Director of Buildings is the head of a Government department (i.e. the BD). He is a civil servant responsible for the management of the department and its staff. He leads and directs the work of the department. He is also the Government's main advisor on all matters relating to the safety and health standards of private buildings.

The BA is a statutory authority established under the Buildings Ordinance. He is responsible for the carrying out of the duties imposed on and the exercise of the powers granted to him under the Ordinance for controlling the safety and health standard of private buildings. These duties and powers include the approval of plans of new buildings, the regulation of the design and construction of building works, and the implementation of legislation by requiring owners to repair their buildings or slopes and to remove unauthorised building works.

Under the Ordinance, these duties are to be carried out and the powers exercised by the Director of Buildings. Therefore, when the Director of Buildings carries out such duties and exercises such powers, he is the BA. The actions that he takes and the decisions that he makes under the Building Ordinance are governed by the provisions of the Ordinance and the relevant legal principles.

From the above follow-up actions and improvement measures taken by the Government, it is clear that the Government has seriously considered the views of the Audit Commission and the PAC, and is determined to fully implement their recommendations.

Although the Government has accepted and is following up the above recommendations, the public has an impression that the PAC and the ICI have made contradictory conclusions over the exercise of discretionary powers by the BA. I would like here to provide the following supplementary information.

The PAC has expressed alarm and strong dissatisfaction, and found it unacceptable that the BA exercised his discretionary power to exclude the PTT from the GFA calculation. The Government fully understands and appreciates that the PAC's conclusion was reached after a number of hearings. The ICI also conducted an in-depth study on the same issue and concluded that the discretion to exclude the GFA of the PTT from calculation was wrongly exercised. As far as the conclusions of both reports are concerned, instead of being contradictory as perceived by the public, they are similar.

The ICI further examined the issue that while the exercise of discretion was wrong, whether the BA has, before making the decision, endeavoured to consider the issue carefully, made reference to previous cases, and consulted other parties at the BAC and sought legal advice on the issue. The ICI concluded that the former BA should not be blamed. To prevent any recurrence of similar incidents in the future, the ICI put forward a number of recommendations to improve the inadequacy in the existing system. The recommendations mostly accord with those of the PAC. On this basis, the Government accepts the ICI's conclusions on the BA's decision to exercise the discretion.

Another issue of public concern is the apparently different conclusions arrived at by the PAC and the ICI on the financial implications brought about by the BA decision to exercise the discretion.

In the PAC report, it was pointed out that the BA's decision had negative financial implications. The tender price offered for the Site could have been higher if the PTT had been excluded from the GFA calculation. The Audit Report stated that the financial implications of excluding the PTT from the GFA calculation could amount to $125 million, which means the value of the GFA concerned may be expressed in terms of $125 million, and not that the Government has lost $125 million in revenue. In this connection, I would like to explain the Government's understanding of the issue.

Firstly, I would like to cite some facts. The reserve price of the lot as assessed by the LandsD before the close of tendering was $1,850 million. According to press reports which quoted the assessment made by members of the property and surveying sectors three to four days around the tender closing date, the value of the Site ranged from $1,900 million to $3,000 million. In the end, the actual tender price was $2,430 million, almost $600 million above our reserve price.

Why is there a considerable difference between the reserve price, the valuation and the actual price paid? The reason is that under the existing system, tenderers are aware that they can put forward different designs to the BA and apply for the exemption of certain facilities from GFA calculation. The ICI pointed out in its report that "it is impossible to judge how the successful bid was calculated. However, the price paid was considerably more than the reserve price. In an open market situation in a highly sophisticated industry such as in Hong Kong, the assumption is that all the factors were taken into account and the best market price was obtained." On this basis, we agree and accept the ICI's conclusions.

We believe that in bidding for the site, tenderers should have considered all the relevant factors, including the application they might make to the BA for exemption of various items from GFA calculation, the market price they might obtain for the development, etc. Such factors should have been reflected in their bids.

Certainly, no other parties, except for the individual tenderers, could tell the exact extent to which their bids for the Sai Wan Ho development project were affected by their expectation that the BA would approve the exemption of the PTT from the GFA calculation. As such, we cannot assume that the Government has lost $125 million in revenue because of the exemption.

However, as pointed out by the Chief Secretary for Administration earlier, the Government understands the public concern that they are not clear about the actual development potential as reflected by the price offered by the developer, and thus they may have some doubts about it. In view of this, the Government has accepted the recommendations of the PAC and the ICI, and revised the guidelines issued to the industry to state clearly that all PTT will account for gross floor area, unless the relevant outline zoning plan stipulates other requirements or a specific planning approval has been granted by the Town Planning Board. This will serve to remove the doubts of the public about the matter.

Finally, I would like to emphasise the partnership between the Government and the PAC in promoting the efficiency and cost-effectiveness of Government departments. The Government will continue to monitor the implementation of the improvement proposals put forward by the PAC and report to it. Thank you.

Ends/Wednesday, May 17, 2006
Issued at HKT 20:42

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