Much has been debated and written about the controversial towers that are to be built, in particular the 38-storey Sliema tower. This project was approved by the Planning Authority by the narrowest of margins: one vote.

I do not intend to write about the architectural design, the environment or traffic congestion issues, as I am no authority on the subjects. Nor do I intend to write in favour or against this project.

I would instead focus on a different concern, namely financial, and ask whether the PA gives any consideration whatsoever to the financial feasibility of such large projects. I have been told that this is not their remit.

I believe that for such projects, which have an enormous impact on the infrastructure of the island, the PA should start taking into consideration the financial feasibility as part of the approval process, in the same way that an environmental impact assessment and other assessments are carried out.

I believe that nobody has taken into consideration what the real environmental impact would be if such a project, especially a 38-floor tower, while half-way though construction, were to remain incomplete due to the developers’ inability to raise additional funds to finish the works.

This could well result from unforeseen circumstances, including cost over-runs, change in market conditions, etc. Has anybody figured out in the preparation of all the photomontages, how the Sliema landscape could look like with an incomplete skeleton tower? It would be a tremendous eyesore visible from all over for many years.

Since the PA is the authority that should ensure that a project, when finished, is adaptable to the landscape in which it is to be built, how can it then assure itself, and us citizens, that we will not face a situation of having a half-built monstrosity?

From a financial perspective, we cannot even be totally assured that such a disaster would not occur. The only remedy in this scenario would be to ascertain that not only funds are readily available to the developers, through own capital and financing, to cover the planned original costs, but also to take into account that additional financing would also be available to cover negative scenarios.

This concept is identical to when the Malta Financial Services Authority looks into granting a licence for a bank. It makes sure that not only the minimal capital is adhered to. It also insists that the promoters place the minimum capital prescribed at law and that they have access to ready available funds should there be a call for additional capital.

This 38-floor tower, or similar projects of this magnitude, are not a small financial project and would require a substantial amount of capital and funds. Considering the size of Malta’s banks, one may ask could such banks really take on such a project on their own considering their own capital ratios and the great pressure they are presently facing from the European Central Bank with regard to their already high real estate exposure on their respective books.

How will these banks face future stress tests from the ECB and what will this do to their capital base? Has anyone considered such eventualities? I hope that the developers have, but that is not the point. It is the responsibility of the respective approving authority to make sure that these considerations are indeed taken into account before approving such projects.

The complexity and size of all projects would have a devastating impact on the social fibre of investors and society

I am sure I will receive a reply from the PA stating that this is not their remit. If this is so, may I ask whose remit is it to protect our environment to make sure that such a catastrophe would not occur?

Some of you might be thinking that I am imagining doom but let me quickly remind all of the various projects that have been approved by the then Mepa and have not taken off due to lack of funding or due to the fact that the developers themselves went into financial difficulty.

These included projects where local developers were even partnered with foreign partners, who at the time were quite financially strong. The tide does change as do the markets.

Europe, including Malta, is about to face a new era with Brexit and we have no idea of the possible negative impact that this could have on Malta and its real estate industry.

Have we forgotten about the large crater in Testaferrata Street which has been there for years? It seems that the developers of this project, after having obtained the Mepa permits, have not been able to raise the funds because the circumstances had changed. What about the Jerma Palace Hotel, half demolished and still in ruins?

And what about the three towers opposite the Adolorata Cemetery, which once structurally completed, could not be finished off due to lack of funds and nobody could move in for many years?

My concern regarding the financing of such large projects stems from the fact that the developers of these new towers also form part of the consortium that was awarded the bid for the power station. It was reported that in respect of this bid, the consortium was unable to raise sufficient funds privately without the intervention of the government guaranteeing €360 million for that project.

In such circumstances one therefore has to raise the concern of whether the developers would be able to raise sufficient equity funds, not only for the Sliema project but also for the other towers in Mrieħel. I would have expected that the authorities would raise such issues before granting any approval. Once again, they would probable say it would not be their remit.

Therefore if the financial feasibility should be considered as an important aspect of an approval process, the two sources of funding for such projects, other than the developers’ own capital, are through the banking system and through the issuance of bonds.

The former would be self-regulating as the banks themselves would indeed make sure that the project would be financially feasible, and they would have enough collateral before granting any loans. This latter solution could indeed be perfect for the developers, from a cash flow point of view, since they would only need to service the interest coupon, leaving the repayment of capital to the maturity of the actual bond.

While unfortunately Maltese investors seem to only look at the interest rate being offered, and not the risk associated with the project, I would expect that it will be the remit of the Stock Exchange and/or the to make sure that the feasibility projections presented for such an approval of a bond issue would prove that the project is financially viable and financeable, in order to ensure sufficient protection to the investors.

Memories run very low and most of these investors would have forgotten that they had already lost a substantial amount of funds when investing into a foreign real estate fund. Someone in position of authority should ensure that detailed feasibility studies of such large projects be prepared and approved as, if the projects fails, the repercussions on society could be huge, from both an environmental and an investor perspective.

These are not normal small real estate transactions but the complexity and the size of all projects put together would have a devastating impact on the social fibre of Maltese investors and society.

I thus strongly recommend that the PA include as soon as possible a directive that financial feasibility studies should become part and parcel of the whole application process.

The absence of a financial feasibility assessment in the application process is to me a serious “fault” in the system.

Francis Vassallo is a former governor of the Central Bank.