On 23 June 2015, the Public Accounts Committee requested the National Audit Office (NAO) to investigate the expropriation of the property at Fekruna Bay, St Paul’s Bay. 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. The property, valued at €4,972,007, was expropriated on 5 March 2013. Compensation payable to the owners, Fekruna Ltd, was settled through an exchange of sites at San Gwann and Swieqi, in aggregate valued at €4,271,583. The balance of €700,424 was offset against capital gains tax and duty on documents due by the Company.

The public purpose served by this expropriation was tied to Government’s efforts to acquire land to be returned to its original state for the benefit of the public. In the NAO’s opinion, the expropriation of this property, although within development boundaries, served the intended public purpose. Negotiations were undertaken by the Property Evaluation Committee (PEC), which set-up provided safeguards to the integrity of the process. Nonetheless, the PEC was constrained by budgetary limitations, which prohibited cash settlement, conditioned the Committee to seek an amicable agreement and resulted in procedures, deemed anomalous by this Office to those ordinarily followed, being adopted.

The PEC valued the site at €5,000,000 and, in October 2010, obtained the authorisation of the Minister of Finance, the Economy and Investment to proceed with negotiations and identify government-owned land to be exchanged. Following ministerial authorisation, responsibility for the process was assumed by the Director General (DG) Government Property Department (GPD). No documentation was retained with respect to meetings held between the DG GPD and Fekruna Ltd, the process that led to the identification of lands for exchange and how the Company was informed of these sites. The NAO considers the lack of documentation as a serious shortcoming, impeding the Office from establishing key developments, detracting from the principles of good governance, accountability and transparency.

In view of the disagreement between the parties, the DG GPD proposed resolution through arbitration. Although legislation does not specify whether it is permissible for owners of expropriated property to be involved in valuing government-owned land, the NAO maintains significant reservations in this respect. In this Office’s opinion, arbitration, if any, was to be resorted to in the establishment of value of the Fekruna Bay property and not in the case of the San Gwann and Swieqi sites. Negotiations on the value of government-owned land present an added and unwarranted risk to Government.

Following agreement, in correspondence to the Minister for Fair Competition, Small Business and Consumers, the DG GPD expressed doubt as to the prudence of concluding the expropriation given the imminent election. The Minister contended that the expropriation was to be concluded as it had been initiated years earlier and served an evident public purpose. The NAO acknowledges that there is no legal stipulation of what functions of government come to a halt, and when, once an election is announced. This Office considers valid the exercise of prudence; yet, similarly deems valid the conclusion of a process long outstanding. Given the regulatory lacuna, the matter remains subjective.

When comparing the valuations of the lands exchanged as established by the Internal Audit and Investigations Department and those cited in the contract, the difference of €1,127,424, adverse to Government, is substantial. An element of this difference can be attributed to the subjectivity inherent in the valuation of property; however, other factors, such as applicable development policies that are more objective in nature, bore impact.

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