An Investigation of Property Transfers between 2006 and 2013: The Acquisition of 233, 236 and 237 Republic Street, Valletta

On 23 June 2015, the Public Accounts Committee requested the National Audit Office (NAO) to investigate Government’s acquisition of the temporary emphyteusis until 31 January 2023 of 233 Republic Street and the purchase of the freehold property at 236 and 237 Republic Street, Valletta from HSBC. The Office was to ascertain 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, 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 NAO is of the opinion that the identification of the properties lacked the transparency ensured 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 Government’s requirements, this does not justify the shortcomings noted in terms of planning and the analysis of suitable alternatives. These concerns are accentuated by the fact that the acquisition of immovable property by 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 NAO deemed the execution of negotiations, as undertaken by the Negotiation Group, as flawed in various aspects. This Office’s attention was drawn to the Negotiation Group’s role in leading Government to agree to acquire the properties on a tale quale basis for €2,360,000. However, the Negotiation Group failed to establish the true condition of the properties, relying solely on that stated by HSBC. In this Office’s opinion, failure to attend to this basic and obvious requirement constituted a significant shortcoming in the process of negotiation, critically and negatively conditioning Government’s negotiating position. This serious shortcoming was reflected in concerns raised by the Permanent Secretary MFEI, who maintained that this procedural error would result in an inflated transaction value. The NAO deemed that asserted by the Permanent Secretary MFEI as valid, as the negotiations would remain flawed irrespective of any subsequent corrective measures.

The NAO established that 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.

The NAO did not obtain conclusive evidence as to whether political pressure was exerted. Aside from the OPM’s initial role, interventions by the Prime Minister and the Parliamentary Secretary Revenues and Land made later on in the process, despite the concerns raised by the Permanent Secretary MFEI, were noted. These interventions were intended to see the acquisition through following a reduction in price by HSBC, which reduction was perceived as addressing the concerns raised by the Permanent Secretary MFEI. The NAO considers the decision to overrule the Permanent Secretary MFEI as within the remit of the Minister MFEI and the PS Revenues and Land; however, this Office is also cognisant of the fact that the concerns of the Permanent Secretary MFEI extended beyond the mere reduction in price, but focused on procedural shortcomings in negotiations that could not be rectified.