The National Audit Office (NAO) said today that the government purchase of three properties in Valletta in 2011 lacked transparency and had several shortcomings, but fair value was paid.
It however rapped the former government over the transfer of the site of the former Löwenbräu brewery at Qormi, where, it found, value for money was not assured.
The investigations weremade at the request of the Public Accounts Committee.
The first involved the acquisition of the temporary emphyteusis until January 31, 2023 of 233 Republic Street and the purchase of the freehold property at 236 and 237 Republic Street, Valletta from HSBC.
The Audit Office was to establish whether the principles of good governance, value for money, transparency and accountability were respected and whether any political pressure was exerted.
While the contract of sale, dated 22 December 2011, was for €2,220,000, the Government was also to pay HSBC a yearly sub-ground rent of €69,071 for Property 233, revisable by 10 to 30 per cent every five years.
The Audit Office said that the identification of the properties lacked the transparency that was through a more open process of acquisition.
"It is in this context that this Office considers the role of the OPM as pivotal in the initial identification of the properties, yet unwarranted.
"While the NAO acknowledges that the properties adequately met the government’s requirements, this does not justify the shortcomings noted in terms of planning and the analysis of suitable alternatives."
These concerns, it said, were accentuated by the fact that the acquisition of immovable property by the government from the open market is exempt from the Public Procurement Regulations which could lead to a reduced degree of governance and proper oversight.
"In this case, the decision for the possible acquisition of the properties was reportedly raised at Cabinet. Although it could be argued that referral to Cabinet constituted oversight, the NAO maintains that the level of scrutiny exercised was insufficient."
The Office said the negotiations by the Negotiation Group were flawed in various aspects.
The Negotiation Group failed to establish the true condition of the properties, relying solely on that stated by HSBC. This serious shortcoming was reflected in concerns raised by the Permanent Secretary, who maintained that this procedural error would result in an inflated transaction value.
The audit office said, however, that the government paid a fair value for the properties.
"Although the transaction was favourable to Government, this does not necessarily imply that value for money was ascertained, which is also contingent on factors other than price. Value for money could have been better ensured through a more open and competitive procurement process and a robust negotiation procedure."
It said it did not obtain conclusive evidence of political pressure.
Qormi property investigation
The audit office also said it had several concerns about the transfer of the site of the former Löwenbräu brewery at Qormi.
In 1990, the land was allocated on a perpetual basis to Löwenbräu Ltd. In 2009, the company redeemed the ground rent for €465,875 with government simultaneously consenting to the cancellation of conditions. This was later deemed to be in breach of applicable legislation and corrected through a contract of exchange in 2012, when the freehold value of the land was set at €706,400.
"The manner by which the request for the redemption of ground rent and the cancellation of conditions burdening the land at Qormi was processed by the Government Property Department (GPD) raised multiple concerns," the audit office said.
"Of concern to the NAO was the fact that this process was initiated by the GPD without a request to this effect retained in the relevant GPD file. The subsequent authorisation, concluded in one day, was deemed highly suspect by this Office, for no true consideration or consultation regarding the merits of the case was carried out by the GPD, indicative of pressure exerted in this respect."
The audit office said that ministerial authorisation was not sought and the department proceeded to the contract on the following day. No charge was levied for the cancellation of conditions, despite the fact that this lifted any limitation on use, hence exponentially increasing the value of the land to the company.
"In the NAO’s opinion, the gratuitous renunciation by the government was intrinsically wrong and represented an abject failure in securing government’s interests.
"Compounding matters was the agreement that was to lead to the transfer of the land at Qormi, entered into by Marsovin Ltd and Agrico Ltd (shareholders of LBM Breweries Ltd) and Vassallo Builders Group Ltd, prior to the 2009 contract. This agreement was contingent on the government acceding to the cancellation of conditions burdening the land within a seven-week period which, in the NAO’s opinion, was a highly improbable outcome had the appropriate legal mechanisms for disposal been adhered to."
Other concerns related to the corrective action taken in 2012, when the freehold value of the land was determined as at 1990.
The NAO deemed this as fundamentally flawed, resulting in a site of 20,000 square metres of developable land being valued at €706,400. This Office considers this valuation as grossly understated and maintains that compensation payable to Government should have been valued as at the time of the renouncement of conditions.
"The NAO contends that value for money was not assured, particularly in view of the fact that the value of the land, as at 2012, was determined by this Office as €7,839,000. The land was disposed of through exchange with expropriated land following cancellation of part of the 2009 contract.
"In the NAO’s opinion, although this was a legally valid option, it circumvented the level of scrutiny provided by Parliament and exercised in public calls for tenders."
This Office maintains that the Minister for Fair Competition, Small Business and Consumers also shoulders an element of responsibility for the serious shortcomings noted in 2012, for he was aware of, yet failed to question, the grossly misrepresentative value of the land.
The audit office said the actions of the government property division officials involved in the 2009 and 2012 processes may, be considered as negligent.
This Office maintains that the (then) Minister for Fair Competition, Small Business and Consumers (Jason Azzopardi) also shoulders an element of responsibility for the serious shortcomings noted in 2012, for he was aware of, yet failed to question, the grossly misrepresentative value of the land.
This report is available in the publications section of the NAO website http://www.nao.gov.mt.
PN: No political interference
In a reaction over the signature of Dr Azzopardi, the Nationalist Party said it welcomed the two reports because they confirmed that there was no political interference in the deals .
"This is a certificate by the Auditor-General for the honest and serious way how the PN used to govern," it said.
On the Valletta acquisition, the PN observed that the Auditor-general confirmed that this was a wise investment from which the government had saved money.
On the Qormi deal, Dr Azzopardi said he was assuming responsibility for the fact that he had had not interfered in the valuation of the property, as the Auditor-General had confirmed.
This, Dr Azzopardi said, was in stark contrast to how the Auditor-General had found that Prime Minister Joseph Muscat and former Parliamentary Secretary Michael Falzon had personally interfered in the Cafe Premiere and Gaffarena scandals. In the latter, the Auditor had even found collusion.
Dr Azzopardi said an analysis of the latest two audit reports showed there were administrative shortcomings, which should be addressed, but there was no political interference.
The PN said it respected both reports and would implement his recommendations (on administrative procedures) when in government.