Issue link: https://maltatoday.uberflip.com/i/1418273
13 NEWS maltatoday | SUNDAY • 10 OCTOBER 2021 fruits and prom- ising expensive (if not unsustainable) infrastructures that will take a long time to happen and do- ing nothing in the meantime to ration- alise car use and shift to healthier, more active travel." With an election around the cor- ner, 'futuristic' plans on a metro seem tailor-made to neutralise a similar, albeit half-baked propos- al already made by the PN in 2017, which the party was expected to re-propose again. Now i is Labour that appears more competitive when it comes to visionary appeal, dispelling the image of Labour as a party concerned by short-term and accelerated economic growth. But what happens after the elec- tion? Will the debate be paralysed by multiple fears conjured by a 'brave new world' where the construction industry still calls the shots as land reclamation looms on the horizon with the 10 billion tonnes of excava- tion waste created by the excavation of tunnels for the metro? Attard herself finds the link to land reclamation "strange". "I am not sure I understand what lies behind it… is this a construction develop- ment model? A way to justify the handling of the waste generated? But surely such a decision requires further studies and planning." Even the images of the new sta- tions of the metro being shared by the government on the social media seem tailor-made to confuse and split public opinion. For apart from depicting manicured open spaces they also offer a glimpse of a new high-rise tower in Pembroke and new development blocking country- side views at the entrance of Bugib- ba. Even environmentalists who are usually the most enthusiastic propo- nents of mass transit solutions, are stunned by these visuals of urban makeovers and by fears of massive coastal development as a result of the construction waste created by the metro. Attard's fear is that this is "just generating hype and acting as a dis- traction to what we should be dis- cussing and doing". Going underground Insiders in Labour insist that this is not just empty talk but a real com- mitment to change and modernize the country. Surely embarking on this road may well offer Robert Abela an opportu- nity to seal his legacy in the annals of history as the PM who opened the first line of the metro. The risk here is that in doing so he may well be tempted to go for the most spec- tacular option, while postponing any measures to push people from cars to the metro by a decade or two. For how can one expect a govern- ment, which constantly congratu- lates itself for not raising any new tax to penalise car users with higher fuel and registration taxes? The other risk is that a metro may be attractive to the big shots not only because of the promise of multi-mil- lion tenders but also by opening up a new front for the construction in- dustry, namely land reclamation. Yet there may be a silver lining in all this. The argument has shifted from one on whether we actually need a mass transit system, to one on which mass transit system is ideal for Malta in terms of environmental and social impacts and which system is best to result in the modal shift. Prof. Attard is sceptical that the answer is an underground metro which will only serve a part of the island and exclude a large chunk of the population, including Gozo and major urban centres in the south of Malta, which will still have to access the metro lines by bus. "A metro system will not solve the problems related to our car dependence as it just shifts public transport under- ground, accessible from only a few locations." She also laments the lack of infor- mation on the level of patronage that would be required to support a metro to make it financially feasible. "The claim that we need higher pop- ulation points towards known facts about the very high rates of patron- age required to support such expen- sive systems." And if buses are added to access and link stations, these would re- quire segregation anyway in the shape of dedicated lanes, to make them as efficient. "So what is the use of a station location which cannot be reached because of buses being stuck in traffic?" For the metro to be successful and sustainable, Malta would still require car-restrictive measures in order to push as many people as possible to use the system. Otherwise the metro itself would go bust and with it the billions of euros invested in it, possi- bly from bonds issued to the public. At that stage failure will no longer be an option, as it would trigger an economic meltdown. jdebono@mediatoday.com.mt JAMES DEBONO FINANCING the massive infrastructural investment in a metro would be possible through the issue of private sector bonds, leading economists Philip von Brockdorff and Joe Falzon told MaltaToday. Finance minister Clyde Caruana this week said there will have to be an "extensive dis- cussion" on the financial aspects, but insist- ed the proposal so far was a matter for pub- lic consultation. "The issue will eventually boil down to taking the necessary decisions and on how realistic certain commitments will be," he said when asked by MaltaToday whether the exorbitant outlay was a head- ache he would want to avoid as finance minister. MaltaToday asked two senior economists whether the country can afford such an enormous investment and whether this ex- pense would be sustainable and in line with deficit restrictions imposed by the Europe- an Union. Asked about the impact of the project on the country's finances, Prof. Philip Von Brockdorff, the deputy Dean of the Fac- ulty of Economics, Management and Ac- countancy replied that this will depend on whether the project will take the form of public-private investment, public invest- ment alone or an entirely private invest- ment. If the project is funded through private investment "the financial implications for government expenditure would be limit- ed". However, it is also likely according to Von Brockdorff, that government will have to intervene to subsidise the price paid by consumers, as in the case of existing public transport. "That is likely in my view given the huge outlay involved in the project and the return investors will be expecting from the project." In this case subsidised pricing would be allowed under EU rules on the same lines as current arrangements. Moreover this policy would help support the modal shift necessary to justify the investment. Asked on the specific financial mechanism to finance the investment, Von Brockdorff believes that the project should be financed from the issue of private green bonds, with the government adopting a subsidised pric- ing policy to indirectly support the modal shift. A green bond issue in line with EU taxono- my would provide opportunities for higher returns and possibly encourage investment from outside the EU as well. "Green bonds would also highlight the green credentials of the project itself and its environmental objectives. They have the potential to yield significant economic benefits for both the issuer and investors alike." Equally important is applying the EU taxonomy for such an investment, allow- ing it to meet the do-no-significant-harm (DNSH) and minimum safeguards, with the green credentials being achieved along- side social protection and safeguarding of human and workers' rights. Even if privately financed, the project may still have an impact on public spending for if the project is successful one has to fac- tor in the lost revenue from car registration taxes and licence. "Overall, however, the welfare benefits of reduced emissions can- not be downplayed in any way." Prof. Joe Falzon from the Department of Banking and Finance concurs that the way forward is to finance the project through the issue of bonds. "Financing €6.25 billion for the metro system would be possible if spread over 20 years." This must be seen in a context where the current value of all equities listed on the Malta Stock Exchange is €3.95 billion, while the current value of all private-sec- tor bonds is €1.96 billion. Moreover, the current value of the Malta Government bonds is €7.38 billion, while the value of the Government Treasury Bills is €0.72 bil- lion. And there are currently €18.3 billion overnight deposits from Maltese residents in the commercial banks earning close to zero interest rates. "Raising €313 million each year through bonds or equity would certainly be possi- ble if we expect that the economy would continue to grow in the next 20 years. €313 million is just 1.7 % of the current €18.3 bil- lion overnight deposits." The main issue according to Falzon would be the repayment of the interest on the bonds issued or the expected dividend to be paid on any equity issued. Currently, private sector bonds are issued at around 3.5% per annum on the Malta Stock Ex- change. However, there is no guarantee that interest rates will remain this low in the next 20 years. Falzon warns that if interest rates will rise in the next 20 years, higher interest payments will be needed to be made to the bondholders, on new bonds issued and on old bonds when these mature and need to be rolled over. "All these interest payments and any dividends will have to be paid from the future income stream of the metro system. So it all depends on the econom- ic feasibility and profitability of the whole project." Leading economists who spoke to MaltaToday believe the €6 billion required to build a metro can be raised through the issue of green bonds Green bonds could finance metro The Okinawa monorail