The Cafe Premier in Valletta, which the government bought back for €4.2 million last year. Photo: Matthew Mirabelli

Taxpayers forked out €210,000 in commissions as part of the €4.2 million paid by the government to buy back the Cafe Premier in Valletta, according to the National Audit Office.

The declaration by the NAO contradicts claims by Mario Camilleri, part-owner of the company which held the lease for Cafe Premier, that the payment was not a brokerage fee but part-settlement of a shareholder loan.

The NAO yesterday tabled in Parliament an investigation into the contract concluded last year, which saw the government re-acquire the lease of the iconic Cafe Premier.

The NAO said it had “notable reservations” regarding the manner by which the reacquisition was made.

“Although the amount paid by the government reflects a fair market value, this does not necessarily imply that value for money was achieved.”

Various shortcomings “detract from the prudence expected” when deciding to undertake disbursements of such magnitude, the NAO said. The investigation had been requested by the Opposition last year after Malta Today revealed how the government bailed out Cities Entertainment, the lease holders of Cafe Premier, to the tune of €4.2 million.

Mr Camilleri had insisted at the time that the €210,000 was part-settlement of a shareholder’s loan his company M&A Investments had advanced to keep Cities Entertainment afloat.

It does not necessarily imply that value for money was achieved

However, in a detailed analysis of this aspect of the deal the NAO insisted the payment of €210,000 to M&A Investments was “an intermediary payment, a brokerage fee or commission, equivalent to five per cent of the transfer value of €4.2 million”.

Reproducing excerpts of various exchanges with Mr Camilleri, the NAO report flags inconsistencies between his statements and a company board resolution that spoke clearly of a five per cent commission.

The NAO also pointed out that in one of the communications with Banif Bank indicating how the €4.2 million would be disbursed, the €210,000 was earmarked as a “commission on sale”. The bank was owed €2.5 million in loans.

The purchase of Cafe Premier was mired in controversy because it was deemed as a government bailout of Cities Entertainment that had run into financial difficulties.

Cafe Premier closed its doors on March 8, 2013 after racking up thousands of euros in rent and tax arrears. The premises, located underneath the National Library, were leased to Cities Entertainment in 1998 for 65 years.

Government opted for an out-of-court settlement

The NAO found that the Government Property Department could have pursued court action to terminate the lease when rent arrears surpassed the threshold stipulated in the contract in April 2013.

However, the government opted to reach an out-of-court settlement to buy back the remaining leasehold. Court proceedings that had been initiated were dropped and the NAO was unable to establish the motivation for the court case withdrawal. The department’s legal section and the rents section presented “opposing views”.

Documenting the negotiations that took place between May 2013 and September of the same year, the NAO noted that Cities Entertainment had initially asked for €5,370,000. It eventually settled for €4,200,000. Negotiations for the government were conducted by architect John Sciberras, the Prime Minister’s advisor. The deal was spelt out in a Cabinet memorandum dated September 10, 2013. The contract was signed in January 2014.

A government-appointed architect had valued the property at €4.4-€4.5 million.

The government said it “took note” of the NAO’s findings and recommendations.

Excerpts from the interview

National Audit Office: So you’re denying that this €210,000 was your commission on the deal?

Mario Camilleri: It’s not a commission. No, no... There was no agent in this. I went in personally. I spoke to the PM, no third party got involved, [Advisor OPM] came from the PM as the person to advise on how to go about the deal and negotiate the deal and that’s it.

NAO: So it’s sheer coincidence that €210,000 happens to be five per cent of the €4.2 million.

MC: It’s a sheer coincidence. Listen if it was going to be something commissioned to anybody you think I would have brought it straight out in the open like this? I gave this to Lands [shows documents with workings relating to the agreement] to tell them exactly how the money is going to be divided. My son presented this... if there was anything to be hidden you wouldn’t be seeing it. Rest assured. But we’re not that kind of people.

Company board resolution

Cities Entertainment board resolution quoted by NAO: Intermediary costs payable to M&A Investments related to the successful conclusion of the deal, equal to 5% of the sale value, will be due upon contract and this will amount to €210,000.