Government`s airport deal with Malta Mediterranean Link Consortium for the sale of a 40 per cent stake in the island`s airport company ran into heavy turbulence yesterday.
A consortium that up to December was considered as a preferred bidder expressed shock and disbelief at the deal. The consortium, Alterra, filed a judicial protest and the American embassy in Malta is now following developments over the contract closely.
The Labour Party called on the government to publish all the documents over the deal.
It said the government should clarify whether the deal with the chosen consortium was the best available, as well as specify the track record of the consortium and say what other airports it had managed.
The deal with Malta Mediterranean Link Consortium, which runs Vienna International Airport, was officially announced yesterday.
Finance Minister John Dalli said it was worth Lm40 million, made up of a Lm20 million equity payment with the balance paid in the form of special dividends and taxes. He described it as an excellent deal for the country and MIA.
In its judicial protest, Alterra said it had not been informed that in the course of the negotiations the government had, in an illegal manner, invited other bidders - which had not been chosen as preferred bidders - to enter into talks.
It claimed the government had communicated to the latter bidders information on various sensitive conditions, including details of the consortium`s financial offer. This, it argued, had taken place in an illegal manner and in violation of the obligation of confidentiality and was of obvious prejudice to the consortium.
Just before the signing of the promise of sale agreement on Thursday evening, Alterra contacted the government in an attempt to raise its bid from Lm39.5 million to Lm41 million. The government said it could not accept the move as it came far too late.
Government gave both consortia until last Friday to give their final offer before the matter was taken to cabinet.
Senior Alterra officials yesterday tried to attend the finance minister`s news conference as observers but were not allowed in.
Michael Macy, public affairs director at the US embassy, said that US embassy officials also tried to attend the news conference as observers but were not allowed in.
He said that since an American company was involved in the consortium, the US had been following developments.
John Mauriz, commercial attaché at the embassy, said they were concerned about the situation.
"We are convinced Alterra was the strongest bidder from the very beginning and that is why it was chosen by the government as the preferred bidder. The mystery is what has changed since then. I stress that Alterra was willing to conclude the deal. The US embassy in Malta is closely following developments."
Speaking about the deal, Mr Dalli said the government would generate significant additional annual revenues from it in the form of annual lease payments, licence fees and corporate taxes.
He said the track record of the strategic investor augured well for the development of Malta International Airport and its contribution to the economy.
"This is a very good deal for Malta. It safeguards the financial, operational and strategic interests of the MIA." He said the government would give the full details of the deal at the opportune time.
He also announced that this year the government planned to float at least 20 per cent of MIA shares to the public.
A promise of sale agreement, which expires in September, was signed in the early hours of Friday morning.
He said he was hoping the deal would be completely concluded much earlier than September.
Asked whether the government had considered the increased bid made by Alterra, Mr Dalli said the government was not interested in playing games.
He said the government had informed both consortia that the sign-off date was last Friday and both confirmed their bids by that deadline.
He said that if the government were to adopt a policy of accepting late offers, it would be impossible to conclude a deal.
"What would have happened had MML increased its offer afterwards as well?"
He said the government could never accept an offer after the expiry of the period of negotiations. The board of Maltese negotiators had unanimously agreed to recommend MML as the winning bidder.
Asked what led the government to choose MML over Alterra, Mr Dalli said the first consortium was a better choice in all aspects. However, Mr Dalli said he was not comparing the two consortia.
Mr Dalli said the MML consortium had also agreed not to invest in other Mediterranean airports. Both MML and Alterra had expressed interest in the privatisation process of the Cypriot air terminal.
This consortium is made up of Vienna International Airport Austria plc (53.24 per cent), SNC-Lavalin Inc Canada (36.13 per cent) and Bianchi & Company (1916) Ltd (10.63) per cent. The Austrian government is a minority shareholder in the company which runs Vienna airport.
Under the terms and conditions of the proposed agreement, the government will be granting land under a 65-year lease and would be entrusting the management of the airfield to the consortium.
The deal is worth Lm40 million, made up of Lm20 million for the acquisition of equity and the remaining Lm20 million will be due as special dividend, stamp duty and other taxes. Besides this up-front payment, there will also be an annual rent of Lm300,000 which will be increased by 15 per cent every five years. This will yield a sum of Lm51 million over the lease period.
In addition, there will also be an annual licence fee of Lm190,000, also revisable according to the increase in the inflation rate. Without taking into account the inflationary revisions, this will give government an additional Lm12.4 million.
Over and above this, it is estimated that in the first 10 years, the company will make a contribution of Lm43.5 million in tax and dividend payments.
Giving a detailed account of the process, Mr Dalli said that by the end of January, the government and Alterra had reached a situation "where positions that were not acceptable to government continued to be insisted upon by Alterra. Consequently, the other two bidders were invited for negotiations subject to meeting certain minimum conditions. Only MML accepted these conditions and in February, 2002, negotiations with the consortium were commenced".
Parallel negotiations with Alterra and MML continued until the beginning of April. By April 20, the positions of the two consortia had been established and the government negotiating team prepared its final report.
Mr Dalli said the adjudicating committee submitted its report together with its recommendation to government, which decided to accept the recommendation.
Under the terms and conditions of the agreement, MML will also have a 15-year technical services agreement, subject to review on performance every five years.
For a period of three years, the consortium has bound itself not to buy any more shares. It also agreed not to declare any forced redundancies. Moreover, the company is bound to a capital investment programme over the next 15 years.
Mr Dalli refused to comment on the `positions` of Alterra that had not been found acceptable and that had led the government to initiate talks with the other consortium.
Mr Dalli said MML had expertise of hubbing in a European context and that this consortium had made a strong commitment based on the expertise of its companies.
He reassured MIA employees that MML would be honouring all commitments insofar as the collective agreement was concerned and that the structure of the MIA would remain as it is. The winning consortium, Mr Dalli said, had agreed to honour every obligation which MIA currently has.
The minister said the deal was not a continuation of the privatisation process which the former Labour government had started in 1998.
He said documents showed that the former Labour government would have only received Lm12 million for the privatisation of 40 per cent of MIA.
It would have also given the selected consortium the title of the property whereas this government was now leasing the property for 65 years against payment.
Senior officials of the Alterra consortium said: "We were selected as preferred bidder last December, based on the fact that we submitted the highest offer price and the best overall business plan for the development and growth of Malta`s airport, besides offering the most experience and expertise as a strategic partner.
"At no point were we informed that this preferred bidder status had changed.
"At no time were we informed by the government that any position we had taken was so unacceptable that the government felt it necessary to approach a third party. Indeed, dialogue between Alterra and the government was still on-going when the government took the highly unusual step of approaching other bidders without, at any time, informing us."
Alterra claimed it had conceded all the points which were not acceptable to the government.