No value for money in Fekruna Bay expropriation – NAO

The failure to apply planning policies on the expropriation of the land at Fekruna Bay in St Paul’s Bay resulted in an adverse impact of €1.12 million, a report by the National Audit Office published Monday, concluded.

The report may have sealed the saga of the pre-election expropriation of the former restaurant in return for two plots of land valued at over €5 million, long placed at the doorstep of the minister for lands at the time, Jason Azzopardi: both Azzopardi, and the Labour Party, whose MPs instigated the NAO investigation, insisted that the NAO had given their version of events credence.

In the end, the NAO accepted that the expropriation had been over-valued and was not value for money.

“Establishing the value of this benefit, positive in terms of use by the public, is beyond the scope of this audit,” the office said on the repristination of Fekruna point. “However, it is the magnitude of this benefit, as compared to the €5,000,000 outlay by Government, that would determine whether value for money was attained, or otherwise.”

A major sticking point in the entire affair was the prudence of settling the long expropriation process right on the eve of the 10 March, 2013 election.

In its findings, the NAO said that the director-general of the Government Property Department had written to Azzopardi, expressing doubt as to whether it was prudent to conclude the expropriation in view of the then imminent general election.

“The Minister MFCC contended that the process was to be seen through, maintaining that it had been initiated several years earlier and served a clear public purpose,” the NAO said.

But it said that while there is no law regulating which functions of government come to a halt once an election is announced, the NAO said it saw “the validity of arguments supporting the exercise of prudence under such circumstances; however, similarly deems valid the drive to conclude a process that had been long outstanding. In view of the regulatory lacuna, the matter remains highly subjective.”

The contract was in fact concluded on 5 March, 2013, by virtue of which the site at Fekruna Bay was transferred to the government for €4,972,007, while land at San Gwann and Swieqi, valued at €4,271,583, was provided in exchange to Fekruna Ltd.

The difference, amounting to €700,424, in favour of Fekruna Ltd, was offset against amounts due to the government by the company for capital gains tax and duty on documents. The total tax and duty due, €721,544 exceeded the difference due to Fekruna Ltd by €21,119, resulting in an overpayment to the company.

The NAO said it was of the opinion that the government should recoup the amount overpaid. 

The Auditor General’s office also said it had serious reservations on the principle to resort to arbitration in determining the value of government-owned land that was to be exchanged.

In fact, the Land Acquisition Ordinance allows agreement to be reached between the Commissioner of Lands and the owner of the expropriated land. However, Maltese laws do not specify whether or not it is permissible for owners of the expropriated property to be actually involved in establishing the value of the government-owned land to be exchanged by way of compensation.

“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.”

Indeed, the NAO said that the subsequent negotiations on the value of the two government-owned lands present “an added and unwarranted risk to government”.

“As the value of the government-owned land to be exchanged is inevitably negotiated downwards by the owner of the expropriated land, the real disbursement incurred by Government, albeit not in cash, increases. This risk materialises in cases such as this, where Government indicated that cash settlement was not an option yet intended to proceed with the expropriation regardless.”

Originally, negotiations to acquire the Fekruna Bay property were undertaken by the PEC, a committee set up in December 2009 to establish the value of properties to be acquired by government and procedures of valuation. 

Ordinarily, the process leading to an expropriation is initiated following a request by a ministry to the GPD. The value of the property to be expropriated is established by the GPD, the relevant President’s declaration is published and funds are deposited in a specific account. It is at this stage that the owner of the expropriated property would claim ownership and the right to compensation.

In this case, negotiations were to be undertaken by the PEC with the director of Fekruna Ltd in an attempt to reach an amicable agreement.

Unfortunately, the Fekruna Bay property – which originally had been within development boundaries – was not included within a specific zone until July 2006, when MPs approved the MEPA local plan for the north. This classification resulted in an increased property value. 

Tasked with the valuation of the Fekruna Bay property, the PEC sought three valuations. “When the NAO considers that the valuations were of €5,000,000, €5,000,000 and €5,100,000, an element of scepticism persists. This Office is of the opinion that an element of objectivity could have been ensured had the GPD not provided the architects engaged with the valuations already compiled on behalf of Government.”

After agreeing on the €5 million value of Fekruna Bay, the GPD moved to value the sites in San Gwann and Swieqi – no record of key developments on these negotiations seem to exist. “The NAO considers the lack of documentation as a serious shortcoming, effectively impeding the Office from establishing key developments, detracting from the principles of good governance, accountability and transparency… This Office deemed the absence of any record detailing developments at this stage of the process as a serious concern, bearing an adverse impact on the overall level of governance, accountability and transparency of Government negotiations.”

The NAO also said that the Arbitration Committee tasked with reaching agreement on the valuation of the properties had no clear terms of reference, reducing its role as simply achieving the mean value of the two valuations by government and the Fekruna owner, as a solution “despite the fact that the Chair acknowledged that he was more inclined to agree with the valuation compiled by the architect representing Government.”

On his part, Jason Azzopardi has insisted that the NAO findings confirm the validity of expropriating Fekruna Bay as a public purpose, and that the NAO praises the creation of an external committee to determine the value of the land. “The NAO indeed pointed out that the committee ensured greater transparency and additional safeguards to the integrity of the process.”

The Labour Party had, as expected, a different interpretation of the findings: “It is a condemnation of an expropriation that took place just four days before the election… in 2006, minister George Pullicino included the land in a zone for residential and commercial development, but when a year later MEPA cited this area for expropriation, the land in question saw its value increased considerably,” it said.