His statement was due to be made at a previous parliamentary session last month, but it was postponed to Monday as Mr Tong contracted COVID-19.
A number of MPs including Mr Seah Kian Peng (PAP – Marine Parade) and Ms Sylvia Lim (WP – Aljunied) asked how much the government was paying overall for early termination and how it was paying compared to what the government was paying The partnership lasted until 2035.
Mr. Tong explained that SHPL financed the entire initial investment for the construction of the sports center by taking out a loan.
“This meant the government didn’t have to provide upfront capital for construction in 2010,” he said.
When the Sports Hub went live in 2014, the government paid SHPL a fee of S$193.7 million each year and would have continued to do so until 2035 had it not been for an early termination.
With that fee from the government, SHPL would then be responsible for the sports center’s entire operating expenses and the assets would have been returned to the government free of charge in 2035, Mr Tong said. This equates to approximately S$2.32 billion.
He added that this doesn’t take into account present value and other financial adjustments.
Table of Contents
“FAIR DEAL”
With termination, the government would have to pay SHPL according to the project agreement for termination and also bear the future costs of running the sports center.
Of that amount, a large portion – S$1.2 billion – can be understood as capital expenditures that the government would have had to bear if it had taken the traditional procurement approach from the start, he said.
An additional approximately S$300 million is comprised primarily of the fair market value of the sports center, which is commercially negotiated, and other costs, expenses and deductions based on the project agreement.
Mr Tong added that the final amount will be based on December’s accounts at handover, but the government does not expect any “material deviation” from the forecast figure of S$1.5 billion.
He also outlined the cost of running and running the sports center after the handover.
Based on current operating assumptions and costs incurred by SHPL, the Government expects operating costs to be approximately S$68 million per year, Mr Tong said.
This includes future replacement, maintenance and programming costs, as well as the day-to-day costs of running the sports center.
“If we were to make a parallel comparison with the balance sheet life of the project agreement…that brings us to approximately S$800 million over the balance sheet period through 2035,” he said.
“Taking into account the two blocks of costs to be paid for termination – the sum to be paid to SHPL, which largely reflects upfront investment and future operating costs – this would be a fair deal for the government to take back the assets. ” he added.
He stressed that none of the components constitute a penalty for the government for early termination.
“There are simply costs that we would have had to or would have borne,” said the minister.
LIKELY HIGHER OPERATING COSTS
“However, regardless of the financial calculations and due diligence, I should make it clear that the decision to end the Sports Hub project was not made for financial reasons or to save money,” Mr Tong said, adding that the government is will not operate Sports Hub in the same way as SHPL.
To make the Sports Hub more accessible and open to Singaporeans, there will be more community programs, investments to host more world-class events, and more frequent openings of the Sports Hub and National Stadium for community use.
“All of this would likely mean higher spending and increases in day-to-day operating and maintenance costs,” he said.
“As such, we should likely expect our post-acquisition ongoing operating expenses to be higher than what we would incur if we merely maintained the status quo under the existing arrangement.”
But at the same time, all the revenue from the sports center now goes to the government, Mr. Tong stressed.