Finance Minister Tonio Fenech insisted in Parliament today that Malita plc, the company being set up by government to finance the City Gate/Parliament House project, was a long-term investment instrument which would ensure financial sustainability.
He was speaking in Parliament at the opening of a debate on a motion for the transfer of properties to Malita, which will function as a special purpose vehicle.
The government will have a 70% shareholding in the company and will issue other shares on the Malta Stock Exchange.
Malita will manage the sites of City Gate and the new parliament and receive rent for their use. It will also receive the groundrents currently due to the government from Malta International Airport and Valletta Waterfront. The funds would be used to finance the Valletta project.
Mr Fenech said this special purpose vehicle was not meant to hide government debt - one did not hide debts by listing on the stock exchange. The SPV was an instrument which would manage income and use it to pay for capital projects. The same instrument could be used for the new Mcast or new schools.
This was a system which the European Commission approved of, and had actually suggested, Mr Fenech said. Had that not been the case, the European Investment Bank would not have made €40m available for the City Gate project at 3.7% interest. He said a further €25m of the capital was being assigned by the government while some €15m would be raised from the sale of shares to the public.
Mr Fenech said the rents which Malita would receive from the Open Theatre and Parliament House plus the rents from MIA and Valletta Waterfront would be more than enough for the company to pay back instalments on borrowing for the Valletta project. Funds could also be used for other projects.
Karmenu Vella, opposition spokesman on finance, insisted that the SPV would be an instrument to hide government debt. Under the Maastricht conditions, public debt was not supposed to exceed 60% and Malta's was already 72% of GDP. The European Commission was warning Malta that such debt could not be allowed to rise any further.
To make matters worse, Mr Vella said, the outlay would be on a project which would yield income for the country. Going to the stock exchange did not make matters right. Enron and Parmalat had also been listed companies, and yet one knew what happened to them.
It was worrying that government debt was growing faster than GDP - and this excluded the €1.5 billion of government guarantees, Mr Fenech said.
It would be far better for the country if its experts discussed how debt could be reduced, instead of creating new measures to legally hide or bypass it, Mr Vella said.
Mr Vella said SPVs could be useful when a project was a profitable one and had growth prospects. An SPV might have been useful for Air Malta or restructuring of some of Enemalta's debts. However the purpose of the City Gate SPV was not genuine because there was no financial or economic benefit. This was a financial loophole so that borrowing would not show up on the government's books. Rather than financial gain for the government, this SPV would take the revenue which the government use to receive from MIA and the waterfront.
The government should be careful not to give ideas to private companies, not that they needed it, Mr Vella said. One must not start a trend as was happening with precarious work.
It would have been cheaper and easier for the government to borrow the money it needed for the Valletta project, but doing so would have put that debts on the books, Mr Vella said. It was that simple.