Updated | Damning indictment on €4.2 million Café Premier acquisition

An investigation by the National Audit Office in the €4.2 million acquisition of a government lease to the owners of the Café Premier in Valletta, has found reservations in the way the value was achieved and a lack of governance.

The NAO said it had reservations regarding the manner by which €4.2 million reacquisition of the lease held by Cities Entertainment Ltd when it had fallen behind on its rent. The money was used to pay back the State its dues in rent, VAT, tax, energy, and other debts to Banif Bank.

It said the price reflected a fair market value, but that this did not necessarily imply that value for money was achieved.

“The lack of rigorous and documented consideration of other options and the failure to properly evaluate such alternatives constrains the Office in determining whether value for money was achieved. One such alternative was the follow-through of legal action, which Government failed to pursue,” it said of the court action that the Lands Department could have taken on the company’s default on the rent.

READ AGAIN Café Premier owners get €4.2 million in amicable ‘bailout’

In a statement, the Maltese government said that it had taken note of the NAO report and that it welcomed the discussion of the report before the parliamentary public accounts committee. "While the Auditor General finds no irregularities and notes the price was at market value, various observations were made that should be taken into consideration and explained further in detail. This government repsects the institutions and will see that the necessary safeguards are implemented so that similar shortcomings will not be repeated in future."

Opposition leader Simon Busuttil however pointed out in a tweet that the minister politically reponsible for the Café Premier "scandal" was the Prime Minister, under whose responsibility fell the parliamentary secretariat for lands. Indeed, the NAO report shows that it was Joseph Muscat's own advisor John Sciberras, a former government property division director, who led the negotiations with Cities Entertainment.

Damning NAO on Café Premier just issued. Poor governance, lack of transparency and unjustified €210K commission among NAO reservations.

— Simon Busuttil (@SimonBusuttil) February 24, 2015

The minister politically responsible for the Café Premier scandal is none other than Prime Minister @JosephMuscat_JM

— Simon Busuttil (@SimonBusuttil) February 24, 2015

In early April 2013, a Cities Entertainment director wrote to the Prime Minister and negotiations between CE and government were concluded in August 2013, and the matter approved by Cabinet in September 2013. On 29 January 2014, Government and CE signed an agreement whereby Government bought back the lease for €4,200,000.

This resulted in the eventual withdrawal of legal proceedings without clear justification or documentation, which action detracted from the required level of transparency expected in such a decision, the NAO said.

“This must be seen within a context where the tenant, CE, was in breach of the lease agreement, as the three-year threshold in ground rent payments had been exceeded when negotiations commenced. Poor governance was a factor central to this shortcoming, with Government’s negotiating team failing to involve the Government Property Department from the initial stages of negotiations,” the NAO found.

Government’s justification for the reacquisition of the Café Premier focused on four main objectives, namely, the removal of possible danger posed to the National Library, the provision of greater accessibility, resolution of the problem of arrears faced by CE and the re-dimensioning of available space.

However, the NAO said the absence of documentation substantiating these policy objectives was considered as a significant shortcoming.

The NAO also said that the payment of €210,000 to M&A Investments, a shareholder in Cities Entertainment, was a 5% brokerage fee on the total €4.2 million deal.

“Despite the fact that government would still have paid €4,200,000, irrespective of the arrangement with M&A Investments Ltd, this Office is of the opinion that the €210,000 payment should not have featured in the agreement.

“The dealings between CE and M&A Investments Ltd were a private matter, and government bore no relationship with the latter. Moreover, the €210,000 payment made in this respect was unsubstantiated and deemed by the NAO as inappropriately included in the agreement. Aside from this payment, no evidence of other commissions being paid out of public funds was found.”

On 19 August 2014, the Opposition Members on the Public Accounts Committee, together with the then Opposition Spokesperson for Home Affairs and National Security, submitted a request for an investigation to the National Audit Office (NAO).

They requested the Auditor General to investigate disclosures in the media that Government had paid €4,200,000 for the reacquisition of the utile dominium of the Café Premier premises, which Government had conceded through an emphyteutical grant to Cities Entertainment Ltd (CE) in 1998.