2011 HSBC property acquisition ‘lacked transparency’, OPM intervention ‘unwarranted’

The Auditor General has issued a damning indictment of the government’s acquisition of the former HSBC properties in Valletta in 2011, arguing that there was lack of transparency and “unwarranted” intervention by the Office of the Prime Minister.

The NAO was asked to investigate government’s acquisition of the temporary emphyteusis in 2011 until 2023 of 233 Republic Street and the purchase of the freehold property at 236 and 237 Republic Street, Valletta from HSBC.

At the time, Tonio Fenech was Minister for Finance whilst Jason Azzopardi was responsible of lands.

The NAO was asked to ascertain whether the principles of good governance, value for money, transparency and accountability were respected and whether any political pressure was exerted. While the contract of sale, dated 22 December 2011, was for €2,220,000, Government was also to pay HSBC a yearly sub-ground rent of €69,071 for Property 233, revisable by 10 to 30 per cent every five years.

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

In its findings, the NAO argued that the identification of the properties lacked the transparency ensured through a more open process of acquisition.

“It is in this context that this Office considers the role of the OPM as pivotal in the initial identification of the properties, yet unwarranted. While the NAO acknowledges that the properties adequately met Government’s requirements, this does not justify the shortcomings noted in terms of planning and the analysis of suitable alternatives.

“These concerns are accentuated by the fact that the acquisition of immovable property by Government from the open market is exempt from the Public Procurement Regulations, which could lead to a reduced degree of governance and proper oversight. In this case, the decision for the possible acquisition of the properties was reportedly raised at Cabinet. Although it could be argued that referral to Cabinet constituted oversight, the NAO maintains that the level of scrutiny exercised was insufficient.”

Read more: Perm sec’s advice on HSBC acquisition ‘never overruled’, Azzopardi insists

The NAO did not obtain conclusive evidence as to whether political pressure was exerted; however, it noted interventions made by several, including then Prime Minister Lawrence Gonzi and Azzopardi.

“Aside from the OPM’s initial role, interventions by the Prime Minister and the Parliamentary Secretary Revenues and Land made later on in the process, despite the concerns raised by the Permanent Secretary MFEI, were noted”.

According to the NAO, the interventions were intended to see the acquisition through following a reduction in price by HSBC, which reduction was perceived as addressing the concerns raised by the finance ministry’s permanent secretary. “The NAO considers the decision to overrule the permanent secretary as within the remit of the Finance Minister [Tonio Fenech] and the parliamentary secretary [Jason Azzopardi].

“However, this Office is also cognisant of the fact that the concerns of the permanent secretary extended beyond the mere reduction in price, but focused on procedural shortcomings in negotiations that could not be rectified.”

Negotiations ‘flawed in various aspects’

The NAO said that it deemed the execution of negotiations, as undertaken by the Negotiation Group, as flawed in various aspects. According to the report, the negotiation group agreed to acquire the properties on a tale quale basis for €2,360,000.

“However, the Negotiation Group failed to establish the true condition of the properties, relying solely on that stated by HSBC,” the Auditor General said.

“In this Office’s opinion, failure to attend to this basic and obvious requirement constituted a significant shortcoming in the process of negotiation, critically and negatively conditioning Government’s negotiating position. This serious shortcoming was reflected in concerns raised by the Permanent Secretary MFEI, who maintained that this procedural error would result in an inflated transaction value.

“The NAO deemed that asserted by the Permanent Secretary MFEI as valid, as the negotiations would remain flawed irrespective of any subsequent corrective measures.”

The NAO established that the government had paid a fair value for the properties. However, although the transaction was favourable to government, it did not necessarily imply that value for money was ascertained, which is also contingent on factors other than price.

“Value for money could have been better ensured through a more open and competitive procurement process and a robust negotiation procedure,” the NAO said.