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SPV Being considered for refinancing Enemalta and the new MCAST campus

 - Wednesday, 25 April 2012, 00:00

by Keith Micallef

The government is considering the refinancing of Enemalta and other capital projects such as the new MCAST campus using the concept of a Special Purpose Vehicle (SPV) which is being adopted to finance the City Gate project which includes the construction of the new Parliament.

In this case a company by the name of Malita set up in June last year will be handed over the finished project to be administered by it for a period of 20 years. In turn, the government will pay an annual rent of about €5 million for the use of its facilities. In the past days the government has tabled a motion for the setting up of the SPV.

Finance Minister Tonio Fenech made this announcement yesterday afternoon at a news conference during which he refuted several allegations made earlier by the Opposition regarding the method adopted to finance the City Gate project which is costing €80 million. Half of this sum is being generated by a €40 million loan from the European Investment Bank (EIB) at 3.7% interest; €25 million will be directly injected by the government while the remaining €15 million will be generated by listing the company on the Malta Stock Exchange.

Mr Fenech pointed out that if the government had opted to issue government stocks instead of getting a loan from the EIB, the interest rate would have been less advantageous, in the region of 4% to 5%. On a positive note, the Finance Minister welcomed the news that the Opposition agreed on refinancing Enemalta by an SPV, and stated it is clear that the main objection regarding the City Gate project is not the method being adopted to finance it but rather the project itself.

In his address to the media, the Labour leader claimed that the government was resorting to the concept of an SPV as it had no choice due to the alarming level of public debt which is not under control any more.

He reiterated once again his objection to the City Gate project, describing the logic behind the decision to build a new Parliament as further proof that the government’s priorities are completely detached from those of the man in the street.

Dr Muscat urged the government to debate this issue urgently in Parliament, and declared that the Opposition will vote against such an agreement as this will bind future administrations to commit taxpayers’ money for years to come.

Asked by The Malta Independent about the eventuality of having a Labour government after such a deal was struck, the Labour leader declared that it would be irresponsible not to respect the terms agreed. “This is why we are urging for a serious debate in Parliament, as this decision will be binding for the next 20 years” stated Dr Muscat while warning that “those who will carry this decision on their shoulders have to be made accountable”.

Another main objection raised by the Opposition regards the two streams of revenue of Malita. It is being proposed that the government will pass the annual revenue generated from the lease of facilities at the Malta International Airport and the Valletta Waterfront directly to Malita. Other sources of revenue for this company will derive from renting its facilities to the government.

Dr Muscat expressed concern that this agreement might exclude the national airport and the local harbours out of parliamentary scrutiny. These claims were rubbished by the Finance Minister, who guaranteed that this agreement does not actually imply that the government will lose control of such assets and therefore these will still be under parliamentary scrutiny.

The Labour leader said that the debate regarding the methods to finance this project should have preceded the actual construction works, as now the project is almost 60% ready and the government still has no idea how to generate the necessary funding.

Labour MP Karmenu Vella said the administration has lost control of the public finances and that a third of the existing national debt was incurred in the past three years. “This is why the government cannot afford to borrow more money and was forced to consider an SPV,” he claimed.

Labour MEP Edward Scicluna who was also present, claimed that the government will have to pay around €10 million a year for the next 20 years, for a project costing less than half the total sum.

In his reply, Mr Fenech explained that plans for a national investment company were drafted as early as the 2010 budget speech, and besides being used in other European countries this financing model is being encouraged also by the European Commission as it is a more reliable method of paying back a debt. According to the Finance Minister, the simple fact that the EIB granted a loan for this project, demonstrates that it is being carried out on sound economic principles, contrary to what the Opposition is claiming.

Malita was officially registered with the Register of Companies of the Malta Financial Services Authority on 3 June, 2010, and is headed by Kenneth Farrugia. Mr Fenech explained that the government will initially have 80% control of the shares which will eventually fall to 70%. On the other hand, he pointed out that this will not be a satellite company, and will be kept at arm’s length from the government while operating on a commercial basis. He added that in future more revenue streams might be added to Malita if more projects are taken on board.

Replying to questions about the decision which led to MIDI being dropped as a possible third revenue stream, he said that it was felt there was no need at this stage for another source of income and that other technical problems had surfaced as well.

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