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maltatoday, WEDNESDAY, 25 FEBRUARY 2015 2 News Prime Minister directly consulted on Café Premier valuation CONTINUED FROM PAGE 1 The Au- ditor General delivered a damn- ing verdict of callous governance against the Labour administration, finding that a €4.2 million buy- back of the 65-year lease to Cities Entertainment (CE) was discrimi- natory and could expose public finances to similar requests in the future and exposing it to criticism in terms of fairness and equality. The story was broken by Mal- taToday in February last year, and led to a NAO report which found poor governance in the way the Of- fice of the Prime Minister control- led negotiations and only involved the Government Property Depart- ment at the last stages of the done deal. Although the €4.2 million was a fair market price, the NAO had reservations as to whether this represented value for money. Since 2004, CE was being called upon by the Commissioner of Land to settle outstanding ground rent of €251,572. In 2008, despite agreeing on a repayment schedule, the Commissioner of Land warned CE it would take legal action, and in 2009 filed a judicial protest stat- ing it had no option but to initiate proceedings for the rescission of the agreement. By the time legal action was taken in early 2013, and despite new efforts made to agree on a repayment schedule, the Gov- ernment Property Department was not in a position to withdraw legal action unless payments were ef- fected. The Café Premier was indefinite- ly closed on 8 March, 2013, on the eve of the general election. A few weeks after Labour's elec- tion, CE director Mario Camilleri of shareholders M&A Investments, wrote to the Prime Minister re- questing a meeting; Muscat re- plied that same day to schedule a meeting on 17 April, during which meeting Camilleri proposed trans- ferring the Café Premier lease back to the government. In May 2013, former GPD director John Sciberras was brought into the ne- gotiations – even though he was officially appointed as Muscat's advisor on government property matters in June. Sciberras brought down Camill- eri's offer of €5.37 million to €4.2 million after using the services of a government architect – whom MaltaToday has previously identi- fied as the new director of the Joint Office and former Labour candi- date Duncan Mifsud. It was Joseph Muscat who author- ised Sciberras to table an initial of- fer of €3.5 million net of tax, that is of €3.97 million. At this stage, Camilleri was aware that the other shareholder, Neville Curmi, was angling for a deal with a third party. But Camilleri told Sciberras he preferred cutting a deal with the government if it came with a better price. As it turns out, both offers tabled by the gov- ernment and the third party were identical, but there is no evidence to suggest that the government was aware of this offer: a fact that could have saved it from buying back the lease. When in July, Sciberras said that the government was sticking to a €3.97 million price, Camilleri re- quested a meeting with the Prime Minister, whom he met with Scib- erras and principal permanent sec- retary Mario Cutajar. In August, Camilleri proposed a €4.2 mil- lion price to Muscat, who in turn sought the advice of chief of staff Keith Schembri. Muscat also asked for advice from the finance ministry, which replied saying that the govern- ment would have to set apart an additional €1.4 million in that year's budget and the remain- ing accounted for in the ensuing two budgets. Instead of dissolving the emphyteutical grant – as the government was empowered to do – the GPD paid Cities Entertainment €4.2 million to pay the government back on ar- rears and taxes, rather than hav- ing them pay the money they owed from their own reserves. Of the total sum, the owners had to pay back: €307,346 to set- tle outstanding arrears with the government property division and €504,000 in capital gains tax owed on the land; then the sum of €192,748 to the Inland Revenue Department to settle income tax and social security payments, €227,058 to the VAT Department on outstanding dues and legal procedures against the compa- ny, and €130,963 in energy bills for ARMS; and also €210,000 to the company's own shareholders M&A Investments and €3,265 to creditors Golden Harvest. Finally, another €2,560,800 was paid to Banif Bank, in settlement of the outstanding bank loans that Cities Entertainment held with the bank, payable in four instalments. Notary takes €20,000 and shareholder takes €210,000 fee The NAO audit has revealed that a €20,000 legal consultancy fee to Notary Malcolm Mangion, of Labour MP Charles Mangion's notarial firm, was "somewhat am- biguous" with the only evidence in relation to Mangion's role being his request for payment two days prior to the signing of the contract. In fact, Mangion had last created a valuation for the Café Premier site back in 2009. And then it was only in Decem- ber 2013 that Mario Camilleri re- quested a €210,000 payment for shareholders M&A Investments, his company; this was "an issue of great contention" right up to the actual signing of the agreement, with Camilleri and co-sharehold- ers Neville Curmi disagreeing on this payment. But the NAO queries the pay- ment, a 5% total of the €4.2 million payment, because it relates to a set- tlement of CE's dues with a credi- tor, in this case Mario Camilleri himself, the shareholder. Indeed the NAO considered Camilleri's evidence of a 2002 bal- ance sheet noting M&A's €465,000 investment as insufficient and which "established no link to the €210,000 payment… had M&A In- vestments sold its shareholding in CE, then the possibility of payment would have been considered plau- sible." While Camilleri denied this was a brokerage fee, Neville Curmi pro- vided the NAO a CE board resolu- tion that specified "intermediary costs" equal to the 5% of the sale value. Despite the fact that the gov- ernment would still have paid €4,200,000, irrespective of the arrangement with M&A Invest- ments, the €210,000 payment was a private matter and unsubstanti- ated, deemed by the NAO as inap- propriately included in the agree- ment. Lack of transparency and good governance The Cabinet memorandum dated 10 September, 2013 defended the Café Premier buy-back, citing the removal of possible danger posed to the National Library by underlying catering establishments, the provi- sion of greater accessibility to the Library, resolution of the problem of arrears faced by CE and the re- dimensioning of available space re- sulting in the generation of income to the government. But the absence of documenta- tion substantiating these needs was considered a significant shortcom- ing by the NAO. Indeed, the NAO found no evidence of the use of LPG cylinders on the premises, except for PPS Mario Cutajar's claim to the contrary. The NAO also found that the GPD was only involved at the final stag- es of the reacquisition of the Café Premier, when all had been already agreed upon. Had the government consulted with the GPD, the court action might have proceeded. Interestingly, the appointment of GPD architect Duncan Mifsud to carry out the valuation of the Café Premier took place without the knowledge of the director general of the GPD. "The NAO considers such a practice as undermining the DG's authority and responsibility for the department, and could have placed the GPD Architect in an awkward situation." The valuation report, despite be- ing prepared on an official GPD letterhead was not retained in file, "indicative of a lack of transparency and poor governance", the NAO said. The NAO's concern was drawn to the various instances where repay- ment agreements entered into by CE and GPD for the settlement of outstanding ground rent were not honoured, way before the 2013 elec- tion. "This ref lects the poor account management practices employed by GPD, including very weak enforce- ment capabilities and no structured system for the follow-up of agree- ments entered into… failure to take the required action in this regard is ultimately counter-productive, as the Department is perceived as inef- fective in terms of enforcement." Former GPD director John Sciberras turned consultant to the OPM: he led negotiations directly with Cities Entertainment and liaised with the Prime Minister Findings by the NAO • Fair market value but not necessarily value for money • Lack of rigorous and documented consideration of other options, such as legal action which government failed to pursue, when Cities Entertainment was in breach of the lease agreement with government • Poor governance with government's negotiating team failing to appropriately involve GPD from the initial stages of negotiations • Payment of €210,000 to M&A Investments was an intermediary payment, that is, a brokerage fee or commission, equivalent to five per cent of the transfer value of €4,200,000 • Aside from this payment, no evidence of other commissions being paid out of public funds was found • No evidence of danger to overlying Biblioteca as claimed by civil service head • No evidence for ambiguous €20,000 consultancy fee paid to notary Malcolm Mangion • Shareholder was economical with the truth over 5% fee he claimed on value of €4.2 million deal