€2.2 million HSBC acquisition ‘over-priced’, warned perm sec

The finance ministry’s permanent secretary had opposed a decision to acquire part of HSBC Malta’s offices in Valletta for €2.2 million, in the belief that the government was forking out more money than it ought to.

Documents obtained by MaltaToday show that in October 2011, then finance minister Tonio Fenech green-lit a €2.2 million acquisition of the HSBC property on Republic Street, having been the government’s intention to move the Attorney General’s office out of The Palace and the Main Guard.

This acquisition, together with a number of others past and present, are also being investigated by the Auditor General.

Negotiations started in early 2011 with a view for relocation by July 2011. But the deal was only concluded in October, with the result that the government lost a year from the remaining 12-year emphyteusis. Due to the extensive refurbishment work needed, the relocation never took place – but the building is today occupied by the Ministry for Tourism.

“The way these negotiations developed and their outcome, if agreed to, would likely result in adverse comment by any third party observer and, most likely, would not escape the negative censure of the National Audit Office and the Public Accounts Committee,” permanent secretary Alfred Camilleri had warned then lands minister Jason Azzopardi in a memo dated September 2011.

“[...] given that I am not convinced that government would not be paying more than it should for the acquisition of these premises if this proposed deal is approved, I feel duty-bound not to recommend the approval of this acquisition.”

The approval was granted a month later.

HSBC’s original asking price was of €2.75 million and subsequently reduced to €2.2 million.

Camilleri however expressed concern at the way the acquisition was agreed to “tale quale on an understanding that all mechanical and electrical plant was in good working order and the property is fit for immediate occupation.”

An engineering report – commissioned after the negotiations and started – disproved beyond any doubt the working assumption that the mechanical and electrical plant was in good working order.

Camilleri wrote in the memo that an additional €250,000 was needed to upgrade mechanical and electrical installations. “The working assumption that these tenements are available for immediate occupation has been disproved as well. Indeed, unless the required repair or upgrading works are carried out, these buildings are not likely to have the required operational efficiency we require.”

He also chastised the Government Property Division (GPD) for not having commissioned an engineering report prior to the HSBC agreement, a pre-requisite for informed negotiations. “The minute one agrees to the acquisition of something tale quale, the acceptance would render any subsequent claims useless”.

Camilleri even suggested that the negotiated price had been overstated by 11%, given the additional spend to render the property operational for government purposes.

The Government Property Division also confirmed Camilleri’s concerns, because when it contacted Tonio Fenech for his approval, it requested “adequate budgetary provision” to upgrade the mechanical and electrical plant, and other alterations. The email granting approval was sent an hour later.

HSBC also wanted to split the €2.2 million between “immovables and movables”, requesting a lump sum of €350,000 for the movables. The GPD’s director-general suggested that the reduced amount of the immovable property would “look better on the contract of transfer”, but Camilleri urged the GPD to wait until all reports had been concluded as acting fast would be “imprudent and wrong”.

Council move to Main Guard

The HSBC property was valued individually by architect Joseph Spiteri – head of department at the Faculty for the Built Environment at the University of Malta – and another by Anton Zammit. Their valuations differed by around €100,000, but the GPD chose to go by Spiteri’s higher valuation of €2.5 million “to be used for a solid offer to HSBC” as it was nearer to HSBC’s valuation.

The Attorney General’s move to the HSBC building was mean to allow the relocation of the Valletta local council into the AG’s Main Guard offices. In parliament last week, Jason Azzopardi insisted that the under the previous administration, the plans had been at such an advanced stage that the government leased out the Main Guard to the Valletta local council at annual rate of €5,600, with the council paying rent two years in advance and funding restoration works at the Main Guard.

With the HSBC building being used by the tourism ministry, the government terminated its lease with the Valletta local council for the Main Guard.

The council also turned down an offer to be housed near Fort St Elmo because it wanted to remain within the city centre.