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Calculating CCTV's Losses

02-20 09:04 Caijing

The TV station is now trying to figure out how to get money for the damaged building from its insurance company.

By staff reporters Luo Changping, Ouyang Hongliang and Luo Jieqi

From Caijing Magazine


The new CCTV complex consists of the main building, the Television Culture Center tower and supporting facilities covering almost 600,000 square meters. Standing at the center of attention is the CCTV building due to not only its towering height but also its enormous financial cost.


CCTV highlighted several selections for the complex with an estimated total investment of 5 billion yuan and finally decided on the Central Business District in the affluent east side of Beijing.


But the actual figure is far more the estimation.


In March 2001, a project office was set up to lead the construction of CCTV’s new complex. In December that same year, the National Planning Commission approved the project, which required a total investment of 7.7 billion yuan – of which 5.5 billion came from CCTV and 2.1 billion from bank loans.


In 2002, CCTV received land use rights for the new location and was required to pay 1.4 billion yuan for the relocation of the previous land user. Later, the Beijing government returned the relocation fee to CCTV.


On August 4, 2004, the National Development and Reform Commission approved the project again, this time with a total budget of close to 8 billion yuan, 316 million yuan more than the previous approval. The budget was finally amended to 7.9 billion yuan.


The project in its entirety, excluding equipment worth several billion yuan, has cost tens of billion yuan. Even after taking inflation into consideration, it still far exceeded its planning budget.


How did CCTV acquire the additional money? It benefited from adhering to a new financial policy that the National Audit Office once criticized for its negative impact on budget management.


According to the new policy, television advertising revenue is considered out-of-budget and is not taxed as part of the company’s income. CCTV must give 13 percent of its ad revenue to the government each year, and may use 3 percent and 6 percent of its profits, minus client sponsorship fees, for a staff incentive fund and employee welfare fund respectively.


CCTV started to accumulate capital after it began following the policy in 2001. CCTV earned 6.1 billion yuan in profits in 2001, added up to 7.0 billion yuan in 2002, 10.2 billion yuan in 2003 and 12.4 billion yuan in 2005.


CCTV started to count advertising revenue as part of its company income and handed in taxes of 3.1 billion yuan between 2001 and 2005, but it could still afford the construction of new complex.


After the fire on February 9, the economic loss of the TVCC are being calculated. Some experts close to the official investigation said structural damages will be more than 1 billion yuan, while the equipment inside is worth about 2 billion. CCTV is now trying to figure out how to get money for the damaged building from its insurance company.


CCTV insured the new complex construction for a total of 1.5 billion yuan. The insurance terms are paraphrased as follows: in the insured period, the insurance company will compensate for any financial losses that happen due to causes other than natural disasters or negligence.


The insurance company also carefully examined the terms of the insurance contract and stated that it is important to identify whether the fire was caused by negligence.


“According to the government announcement, CCTV did not fulfill its responsibility in taking care of its property. In other words, it used fireworks without official approval and violated regulations on construction safety. It did not respond and take action after three warnings from the police,” a professor from Beihang University said. “Most likely, CCTV will be held responsible for the fire.”


The professor also said that the leader of the group who lit the fireworks was asked to do so by CCTV and did not do so on his own accord.


An insider from the insurance company who spoke on condition of anonymity told Caijing that the fire testimonial by the Beijing Municipal Fire Bureau will determine whether the insurance company will pay the compensation. If CCTV is held primarily responsible, then the insurance company will not pay, but if the individual is held responsible, then the insurance company will have to compensate the television company.


Full article in Chinese: http://magazine.caijing.com.cn/20090215/78479.shtml  

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