The House of Representatives yesterday started debating a motion on a new emphyteutical grant of Fort Chambray in Gozo to companies owned by Michael and Carol Caruana of Victoria. The government would also be selling its 49 per cent shareholding in the project for a total of Lm3.7 million.

Public Investments Minister Austin Gatt told the House that there was no arguing that the grant of the fort in January 1993 to previous developers had failed and that grant had therefore been terminated. No works had been made on the development since 2002 and development permits had expired. The development to date consisted of a number of apartments, but no hotel had been built and no embellishment works had been carried out. What little restoration works had been carried out would have to be redone.

He said that while the government could have taken the issue to court, it had opted for a faster resolution of the case through talks. It was eventually agreed, on the suggestion of the former Italian and Maltese shareholders, that they would transfer their shareholding to Michael Caruana. The government would also sell its 49 per cent shareholding in the development to Dr Caruana, whose family, Dr Gatt said, was well respected in Gozo and had been successfully involved in business for generations.

The previous 99-year grant of the fort had been approved by parliament in January 1993, with the contract providing for 236 residential units, a hotel, commercial establishments, refurbishment of the old barracks into a commercial centre and restoration works.

Dr Gatt said several problems had cropped up and the project ran out of funds. The Planning Authority in 2001 also issued stop notices over some of the works. The shareholding of the holding companies changed some 10 times. Ultimately, the shareholders of Forti Development Ltd and Fort Chambray Ltd were Paul Abela, the Fenech family and Alex Grech and family.

Dr Gatt said the government could have taken the developers to court, but that would have taken ages and nothing would really have been solved. The government wanted the development to go ahead in the interests of Gozo and eventually talks were started in 2003 with Anteman, an Italian company controlled by Roberto Memmo which was the leaseholder, and the other shareholders. It was the former developers who had proposed transferring their shares to Dr Caruana.

The government had set various conditions, notably that this would have to be a totally new contract, that there would be one known shareholder with a company registered in Malta, that shares could not be transferred before completion of the project, and that there would be deadlines and penalties if contract conditions were not observed. The government also wanted to end its participation in the project.

Dr Gatt admitted that he personally did not like the way the fort area had been built up, but once that was the development which Mepa had approved, the developer would seek to revive the old permits, saving that the hotel may not be built because of an oversupply of bedstock in Gozo, in which case a fresh application would have to be filed to Mepa for more apartments. A decision had to be taken with a year.

In terms of the contract, phase one, which was the building of the apartments, had to be completed within a year of development permits being issued. The barracks area had to be completed within two years and the hotel within three years of the contract date if that part of the project was to go ahead.

Should the deadlines not be met, the developer would be fined Lm100 a day and the government would have the right to dissolve the contract.

Dr Caruana would pay the government Lm1.2 million for its shareholding in the project following a valuation by Frank Salt and Perry Ltd. This constituted a 100 per cent net profit since those shares had originally not cost anything.

The emphyteusis will run to 2092 and the groundrent would remain unchanged at Lm12,000 but Dr Caruana would pay a premium of Lm1.5 million. This was considered justified and was far from being a gift as some had remarked.

One only needed to consider that this project had been stagnant and losing value and the developer, who also had to pay the other shareholders, was taking major risks. Furthermore, the government's over-riding interest was to see the project completed.

In all, the government would have a revenue of Lm3.7 million, including capital tax and other duties.

The developer would also be obliged to pay Lm100,000 for the lifting of the 2001 enforcement notices.

Nationalist MP Mario Galea said Fort Chambray had a long and tortuous history. The Knights had planned to build a town there, but only managed to build the bastions. The British than built barracks within the walls.

It had served as a mental institution but the pre-1971 Nationalist government laid plans to develop the fort as a tourism establishment including a 320-bed hotel.

The 1971 Labour government scrapped those plans and refurbished the mental hospital. Then in 1979 the mental patients were moved elsewhere and suddenly the fort was allocated for tourism. Hardly any development was made but before the 1987 elections Labour Party activities were held there.

Just before the 1987 election the Labour government transferred the fort to Mr Zammit Tabone who headed Fort Holidays, a company with a capital of just Lm5,000 and no employees.

Mr Galea referred to remarks by Labour MP Charles Mangion and said the government should not dictate that a hotel should be built within the fort when there was an oversupply of bedstock.

Concluding, Mr Galea said Labour was in government between 1996 and 1998 and it had not tried to remove Italian financier Roberto Memmo despite its objections to his involvement in the last project in 1993. It was the present government which had now persuaded him to back out.

Nationalist MP Joseph Falzon said that during the budget debate opposition spokesmen had said it was useless to come up with projects which were not economically viable.

Now they wanted the government to lay down that the Chambray project should include a hotel at a time when several hotels were being converted into apartments. Applications for such conversions included the Duke of Edinburgh, Andar and Mgarr hotels in Gozo.

This was what the market was demanding at the moment. There might come a time in future when new sites would be required for hotels but not for the time being.

Mr Falzon said Mepa had done well to impose stop notices when the conditions of the first Chambray contract were violated. It was good that the new contract included provisions for the restoration of the fortifications and the developer was also assuming guarantees given to the bank for the project.

Parliamentary Secretary Edwin Vassallo said the new contract had reached the finalisation stage because it imposed flexible conditions. The government was not saying that a hotel should not be built, but that would depend on the development on the basis of the profit motive. One could not tell entrepreneurs what to do.

But hotel development was still proceeding strongly. The old Hilton, Fortina, Golden Sands and Cavalieri had all been replaced by new hotels while the InterContinental had also opened.

The new Chambray contract would lead to further economic growth in Gozo, restoration of the fortifications and public access to them, Mr Vassallo said.