Two-way traffic between industry and government

There was an old joke of the ‘Confucius he say’ genre, which went – ‘Man who walk sideways through airport revolving doors is going to Bangkok.’

It may not have much to do with top management personnel to-ing and fro-ing between private companies and the public authorities which supposedly regulate them… but it does illustrate the unforeseen perils of allowing a ‘revolving door’ culture to grow unchecked.

These dangers are well known to the European Commission, currently under fire over the individual choice of career of a few of its former Commissioners… among them Malta’s Joe Borg, the former EU Fisheries Commissioner who went on to land himself a job with a Scandinavian fisheries lobby group, while officially still being remunerated by the EU to ‘help him re-integrate into the workforce’.

Nor is Borg the only example. Others include former Enlargement Commissioner Gunther Verheugen – who set up his own lobbying consultancy after retirement – and more recently Charles McCreevy: formerly the European Commissioner for Internal Market and Services, who took up a job as consultant to a UK investment bank.

McCreevy’s case is particularly revealing, as this week he was made to resign by the European Commission’s ethics committee, citing a ‘clear conflict of interest’ between his former role as main services regulator, and his new job in the private sector.

“Following a dialogue with the European Commission, it has not been possible to find a way in which Mr McCreevy can continue with his directorship of NBNK in a manner compatible with his standard responsibilities as a former European Commissioner,” the committee ruled.

So even if a European ‘revolving door’ policy is still lacking, it is nonetheless clear that the EU is at least conscious of the potential for conflicts of interest that may arise when legislators/regulators go on to work in the same areas they had previously regulated.

The same clearly cannot be said for Malta, where revolving doors appear to be happily spinning away in quasi-perpetual motion.

Smart moves

One sector where the doors between government and private enterprise have never really been closed is that of Information Technology – very much a bee in the present administration’s bonnet, with its constant harping on ‘smart’ investments and the need to turn Malta into an IT hub by 2015.

The minister responsible for attaining this particular goal is Austin Gatt: so it was understandable that eyebrows would be raised when the head of his private secretariat, Claudio Grech suddenly doubled up as chairman of the newly instituted ‘Malta IT Agency’ – which supplanted MITTS as Malta’s official information technology agency.

Eyebrows rose higher still when Grech quit this post in turn to run the Smart City project – a joint venture between the government of Malta and Dubai company Tecom Investments – without relinquishing his post as head of Gatt’s secretariat.

As revolving doors go, these seem to turn in two directions at once. As overseer of Malta’s entire information technology strategy, Grech was privy to information of great interest private operators in the IT sector: especially those which tender for government contracts.

And as Smart City CEO, his simultaneous post within Gatt’s ministry also placed him in a position to influence legislation/government policy in a way that might benefit his private employers (though whether he availed himself of the opportunity is another, unanswerable question).

Either way, the conflict of interest was not lost on the Opposition, whose IT spokesman Chris Cardona heavily criticized his appointment to both posts. “The fact that the former head of secretariat to Austin Gatt is the CEO of Smart City Malta and now also MITTS chairman, could lead to a potential conflict of interest for the man who is formulating Malta’s IT policy,” he said – to which IT minister Austin Gatt replied that Grech, like everyone appointed on boards and in the administration of entities falling under the ministry, was also subject to “explicit guidelines” on what should happen in case of a conflict of interest.

These guidelines are found in the Ministry’s code of ethics, and somewhat vaguely stipulate that directors must ensure “the highest possible level of accountability and transparency” at every stage of in tendering and procurement procedures.
Directors must also avoid “any actual, perceived or potential conflict of interest at all costs.” But the code also says conflict of interest should not be “a deterrent for competent persons to take up public office.”

Code of Ethics

A good example of how these guidelines actually work in practice would be the case of Alex Tranter: the former chairman of Enemalta, who also doubled as shareholder of a number of companies co-owned by Vassallo Builders Ltd, for whom he was served as a company director.

Under the circumstances, accusations of ‘conflict of interest’ were perhaps inevitable: especially when Vasallo Builders also cast a bid – and eventually won – for part of a government contract for the extension of the Delimara power station: a contract worth €200 million in total.

Leaving aside the allegations concerning the contract itself (more of which later): the difference between Tranter and Grech is that the former acknowledged that he had a conflict of interest, and reported it to the relevant ministry: which at the time also happened to be spearheaded by Austin Gatt.

“A potential conflict of interest is possible,” Tranter told MaltaToday in June 2009. “As soon as I was aware of such possibility, I declared this to the Enemalta board of directors on 26 June 2008. This conflict of interest arose after a shareholder of the company I worked for in my private business, was being listed by one of the bidders as a possible, though not definite, sub contractor for the initial part of the contract when civil works would be undertaken.”

Tranter also revealed that this potential conflict of interest had to a degree affected the operations of Malta’s government-owned energy provider. 

“The deputy chairman took over the chairing of the meetings of the Enemalta board whenever this item (the Delimara extension contract) was raised for discussion. It is pertinent to note that the structure of negotiation and adjudication of the said tender was independent of and distinct and separate from the board of directors, whether I was chairing the meeting or not.”

Having duly taken note of the ‘potential’ conflict, Enemalta retained Tranter as chairman, without forcing him to relinquish his involvement with Vassallo Builders – in stark contrast with former Commissioner McCreevy, whose resignation this week reverberates as an illustration of the gulf of difference that exists between ‘codes of ethics’ at the European Commission, and the Ministry for Infrastructure, Transport and Communications (MITC).

Tranter resigned from Enemalta last year, and has since taken up a new position as CEO of a private firm, also co-owned by Vassallo Builders: a move which separately raises another ‘revolving door’ consideration – whether former top management with government agencies can move directly to employment in the private sector; or whether (as in the United States) there should be a established timeframe, if necessary coupled with State financing to make up for loss of income, within which    such persons would not be allowed to take up positions in ‘compatible’ sectors.

BWSC blues

This latter consideration was brought to the fore earlier this year, when a fresh wave of revelations concerning the now notorious ‘BWSC’ contract came to light.

The main protagonist was this time Enemalta’s former CEO David Spiteri Gingell, whose multiple roles as (among others) chairman of board of adjudication of the Delimara tender, as well as chairman of the Climate Change Advisory Committee – and more specifically, the curious decisions he took is these capacities – raised a number of highly contentious questions regarding the way the Delimara tender was actually awarded.

Among the more controversial aspects of the BWSC contract were the twin decisions to raise Malta’s maximum emissions threshold (taken at government level), while simultaneously scrapping a previous government policy to convert from oil to natural gas as Malta’s primary energy-generating – upon the recommendation of the CCAC, chaired by Spiteri Gingell.

Both have massive implications for health and environmental concerns; and given that both decisions were taken shortly before the award of the Delimara tender to a company offering a technology based on heavy fuel oil, it was unsurprising that the Opposition would latch onto the ‘coincidence’ to allege corruption in the overall process.

Matters were exacerbated by the news that the European Commission was likewise investigating a possible breach of EU law regarding the change of tender specifications… apparently to the benefit of firms proposing diesel technology – like BWSC.

As Enemalta CEO Spiteri Gingell was closely involved in both decisions. More specifically, as chairman of the adjudicating committee he also took the decision to award the contract to Scandinavian firm BWSC – having changed the national energy policy in such a way that, with hindsight, appears tailor-made for the technology this company was offering (and which would have been ineligible according to the old regime).

The same Spiteri Gingell also turns out (like Tranter) to be a consultant for Vassallo Builders (services he rendered in the name of Loqus Business Consulting Ltd.) which also successfully tendered for part of the contract.

And also like Tranter, upon relinquishing his post as Enemalta CEO, Spiteri Gingell took up a post in a private firm that was also tendering for a separate government contract involving energy provision:Loqus Holdings, formerly known as Datatrak, which were involved in part of Enemalta’s €70 million smart meter project… which the State energy provider had started discussing with IBM while Spiteri Gingell was still CEO.

Though unrelated to the BWSC contract, this latter detail carries weighty implications for the entire ‘revolving door’ concept. Less than four months after Spiteri Gingell drifted from Enemalta to Loqus – of which he was given a 25% stake – the private company was already partly connected to the five-year nationwide smart meter and smart grid programme.

So did Spiteri Gingell avail of insider information to favour one company at the expense of all others? And if so, is this sort of thing illegal in Malta? The first question cannot really be answered with any certainty, but the second certainly can. There is no legislation governing the ‘potentiality’ of conflict of interest under such circumstances… and other than a vaguely worded code of ethics, there is nothing to stop individuals from flitting from public to private employ, regardless of the suspicion of insider trading.

Next stop: Bangkok…