Premier acquisition: Muscat defends €4.2 million payment

The parliamentary secretariat for lands has refused to acknowledge wo requests by MaltaToday for the workings into a €4.2 million price tag on the title of land formerly occupied by the now shuttered Café Premier, in Valletta.

Prime Minister Joseph Muscat has now said that the ‘amicable acquisition’ – as it was dubbed by the parliamentary secretary for lands – was intended at removing the catering facilities from beneath the overlying Biblioteca on Pjazza Regina.

He has defended government’s decision to buy the title instead of evicting the owners, and to report to the police allegations by Nationalist MP Jason Azzopardi, which asked whether “a commission” was paid for the acquisition.

“We have priceless treasures in the National Library that had to be protected, and this was a concern for the previous administration as well,” Muscat told MaltaToday.

“It was an opportunity for us… given the right price, and this is where an independent evaluator came in, we took the place back to use it for a proper purpose. It is a historical building that is important for the country.”

Muscat has denied the suggestion that a “bailout” was brokered for Cities Entertainment Ltd, company that took out the 65-year emphyteusis in 1998. “That is why I sent the allegations to the police for investigation,” Muscat told MaltaToday.

The company that had the title had amassed several millions in debt when the Lands Department commenced court action in December 2012 to force it to pay over €200,000 in arrears. Then in June 2013, court action was stopped and in January, the company was paid €4.2 million to relinquish the title.

The final deed states that the money had to be used to pay back the government outstanding dues on income and capital gains tax, VAT, rental and utility arrears, but also Cities Entertainment’s €2.5 million in private banking debts.

Azzopardi, who queried whether any commissions were paid for the deal, has hit back at the OPM’s decision to file a police report.

“This government either has a warped sense of humour or an even more perverse set of priorities. An out-of-court settlement reached in record time after the elections between the Lands Department and the operators of a non-profitable commercial enterprise enjoying government property, who owed various government departments several hundreds of thousands of euros… On the other hand the same government does not want the police to investigate hundreds of corrupt individuals who bribed public officials in the smart meter scandal.”

MaltaToday this week was told that representatives of the company may have got a better deal than expected. A realtor privy to the company’s predicament said that at one point, Cities Entertainment was demanding €3.5 million for Old Treasury Street cafeteria.

The government has confirmed that it chose not to expropriate Cities Entertainment from Café Premier “forcibly” – which would still have involved some form of compensation – and instead proceed with an “amicable” acquisition.

What is unanswered is why it did not rescind the emphyteutical grant when it learnt that the café had ceased operating, and that the owners were negotiating with third parties to sell the business, both of which are not permissible according to the original emphyteutical deed.

The payment was conditional on the company repaying €307,346 in arrears to the government property division; €504,000 in capital gains tax; €192,748 in income tax and social security payments; €227,058 in VAT; €130,963 in energy bills; several thousands to creditors and company shareholders; and a further €2.5 million balance on loans taken out with Banif Bank.

Under the ‘bailout’, the government has now acquired Café Premier and its ‘Great Siege 1565’ waxworks attraction on Old Theatre and Old Treasury streets.

In 2012, Cities Entertainment was paying just over €93,000 in annual ground rent to the Lands Department but also wracking up enormous debt from its operation.

Originally, the directors of Cities Entertainment – Michael Bianchi, Joe A. Grima, and Michael Zammit Tabona (all of whom later resigned) – paid former tenant Joseph Pace, of the former Magic Kiosk café in Sliema, Lm850,000 (€1.98 million). They also had to carry out Lm350,000 (€815,000) in improvements inside the café and its Old Treasury Street extension over the next five years.

In today’s prices, the total rent over 65 years would have amounted to €16.8 million.

An estimate of Café Premier’s value

Under Chapter 88 of the Laws of Malta, the government can expropriate premises for the protection of historical buildings using two separate procedures (Article 11).

In the first procedure, since the Premier was originally government-owned, the compensation can by calculating the inflation on the original acquisition price in 1998 (Lm850,000 or €1.98 million), and multiply it by five. An architect who assisted MaltaToday in this exercise says at this rate, the compensation would have been as high as €14 million: €2.8 million in 2013 prices, according to the inflation index in the Housing Decontrol Ordinance, multiplied by five.

In the second procedure, the value of the historical building has to be assessed if it was sold on the open market, less the amount required for the historical building to be restored.

Two cases were used: a semi-converted palazzo behind the Grand Master’s palace selling for €998,000 or €1,472 per square metre; and a casa bottega with open harbour views, selling for €1.99 million or €3,401 per square metre.

On average, at €2,436 multiplied by Premier’s total layout of 785 square metres, the value would be of €1.91 million. At the high end (€3,401) it would be estimated at €2.67 million.

“Since the property is already restored, the deduction for its restoration, as a very conservative measure, is being assumed as zero,” the expert advising MaltaToday said. “A fair estimated would be the average of €1.91m & €2.67m, that is €2.29 million.”

NOTE: Floor area estimated from plans submitted in MEPA application PA 377/07