GOVT FINANCES PRIVATE OFFICE DEVELOPMENTS

The MidTown Project By Dutch architects Bureau Ritzen In Gibraltar

The Opposition considers that it is unacceptable for the Government to mortgage its own office blocks in order to raise finance to invest in private office developments. Whilst the Government is free to raise money for financing Government projects by using a wholly owned Government company, as the owner of existing Government office blocks, the Opposition do not agree with the reason for doing this, says the Opposition  statement issued today.

Adding : 'The money raised in this way is not part of the public debt because the servicing does not fall on the Consolidated Fund. The Opposition considers that it is one thing to invest in Government owned projects or properties and quite another to finance private office development. In effect the mortgaging of Government buildings is only an extension of what the Government has already done in raising finance outside the sphere of the public debt by the sale and leaseback of the hospital building and the raising of finance for building car parks with the wholly owned car park company.

'It will be recalled that last year the Government said that they were concerned that the general lack of office space was proving an obstacle for companies seeking to establish or expand their operations in Gibraltar. They argued at the time that normally this demand for office space was met by private sector developers but “because of the international banking crisis and credit crunch, it is almost impossible for private developers to obtain bank finance for such projects.” The Government also said that if they became a majority shareholder in the first phase of Mid-Town, this would ensure that taxpayers obtained their fair share of development profits.

'In his budget contribution this year, the Chief Minister was critical of the Chamber of Commerce annual report which had  said that this situation was for the market to determine and that the Government should not intervene. In response, Mr Caruana insisted that the lack of office space would turn away business. He added that the idea that the Government should stand idly by and allow this to happen “is not one that appeals to me or that the Government will genuflect to.”

'The fact that the Government has mortgaged its own property in order to finance projects like Mid-Town will add insult to injury for the taxpayers of Gibraltar. This is because the GSD were responsible for creating the shortage of office space in the first place when they moved the hospital into an office block at Europort. This was something that they were warned about at the time and the view of the Opposition was that it would have been cheaper and more sensible to have constructed a purpose-built hospital from scratch somewhere else.

'Moreover, the land at Mid-Town was undersold to the developers in a deal that did not go out to tender. It was exchanged for £10 million worth of works which were meant to include the leisure centre, a park, a school and a car park. The Opposition estimated at the time that the land was  actually worth £20-£25 million.

'The decision of the Government to finance property development in relation to office space is not consistent with what they have argued in the past. They used to claim that for the Government to become the developer “would have exposed Government and not the developer to the risk of cost overruns.” They have also claimed that “private developers secure better prices from contractors than Governments.”

'Acting Opposition Leader Dr Joseph Garcia said:

“The Opposition does not agree with the Government’s decision to mortgage its own office buildings in order to raise money to finance private office development.”'