Date
21 September 2017
TECL will pay a HK$1.5 million monthly rental to the government for the land in the next three years. That is up more than 80 percent from the previous rent of HK$825,000 a month. Photo: Bloomberg
TECL will pay a HK$1.5 million monthly rental to the government for the land in the next three years. That is up more than 80 percent from the previous rent of HK$825,000 a month. Photo: Bloomberg

Observation Wheel saga: What is the govt up to?

The Hong Kong Observation Wheel has been closed for more than a week since the tenancy contract of the previous operator expired without any transitional deal between the old and new operators.

The government is trying to distance itself from the saga but it owes the public an apology for its failure to ensure the smooth transition of the wheel’s operation.

The story began when the short-term tenancy for the land expired last week. The new operator, The Entertainment Corp. Ltd. (TECL), did not go public until Monday night with a press statement. TECL said it was in discussion with Dutch Wheels, the owner of the wheel, to acquire the major part of the wheel and with Swiss AEX to acquire the base of the wheel.

But the company did not mention when the wheel will be in operation again. Earlier, Swiss AEX had issued a statement criticizing TECL for lacking experience in running the wheel and lacking the money to acquire the assets.

Both sides said they’re trying their best to keep the wheel and resume operation as soon as possible.

In a media statement, the Development Bureau said the previous operator, Swiss AEX, must complete the demolition of the wheel and reinstatement works in the wheel site by Oct. 31 so that the site could be handed over to the new operator, if no deal was reached between them to acquire the existing wheel.

From an outsider’s perspective, it may be just a business conflict between the incoming and outgoing operators.

But the deep-rooted reason behind the saga is clearly the lack of transitional arrangement and long-term planning in the government’s tender when it decided to pick a new operator. The question is why the new operator must build a new wheel. Is there something the government is not telling us?

In May, the government announced that TECL was the winner of a three-year tenancy contract for the land effective September.

According to the tender, TECL will pay a HK$1.5 million monthly rental to the government for the land in the next three years. That is up more than 80 percent from the previous rent of HK$825,000 a month. That is simply the reason that the government wants a new wheel operator — higher rental income.

Several local media reported that the new operator has a strong background in organising carnivals such as the AIA Carnival in the Central Harbourfront in previous years.

TECL wants to lease the land surrounding the wheel for activities and carnivals to subsidise the fare on the Observation Wheel.

The media reported that the fare for each ride will be reduced to HK$20 by the new operator from HK$100 previoulsy. But it’s worth noting that the fare was not the top consideration in the first tender.

It only became a major condition in the second tender after the government said it wanted the wheel to be enjoyed by the masses at a lower fare. Some economists argued that the new pricing won’t make money for the wheel business given the previous operator was just break-even at a HK$100 fare.

It is understood that the government decided to pick the new operator due to higher rental income and extremely cheaper fare for the wheel.

And now it is said that the authorities had taken into account the possibility of demolishing the old wheel and putting up a new one under the new tender.

The government indirectly admitted that it did want a new operator for the wheel and never considered renewing the contract of the incumbent. That is not fair to Swiss AEX as it has done nothing wrong in the years it operated the wheel.

On Tuesday, the government said that experience in operating the wheel is not a major consideration in the award of the tender. Again, Swiss AEX got a slap in the face.

One other reason the authorities changed their criteria is to introduce a government-friendly operator.

TECL is controlled by Michael Edward Sean Denmark and John Paul Mclellan. Mclellan is the husband of Lane Crawford chief executive Jennifer Woo. The new operator has ties to Wharf Holdings, one of Hong Kong’s major landlords, controlled by Peter Woo.

The government is planning to redevelop the Central Harbourfront after the three-year contract expires by building some low-rise blocks for commercial use. Is there any link between the new wheel operator and these new projects?

– Contact us at [email protected]

RC/RA

EJ Insight writer

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