The Expropriation of the Property at Fekruna Bay, St Paul's
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facebook.com/NAOMalta nao.gov.mt An Investigation of Property Transfers between 2006 and 2013: The Expropriation of the Property at Fekruna Bay, St Paul’s Bay Report by the Auditor General July 2017 This report has been prepared under sub-paragraph 9(a) of the First Schedule of the Auditor General and National Audit Office Act, 1997 for presentation to the House of Representatives in accordance with sub-paragraph 9(b) of the First Schedule of the said Act. Charles Deguara Auditor General July 2017 An Investigation of Property Transfers between 2006 and 2013: The Expropriation of the Property at Fekruna Bay, St Paul’s Bay Table of Contents List of Tables and Figures 4 List of Abbreviations 5 Executive Summary 6 Chapter 1 – Introduction 12 1.1 Request for Investigation 12 1.2 Media Allegations regarding the Expropriation of the Property at Fekruna Bay 13 Report by the Internal Audit and Investigations Department 14 1.3 The Site at Fekruna Bay, St Paul’s Bay 17 1.4 Methodology 18 Chapter 2 – Expropriation of Land and Property at Fekruna Bay, St Paul’s Bay 20 2.1 Background 20 2.2 Expropriation of the Foreshore at Fekruna Bay 20 Constitutional Court Case and Appeal 22 The Valuation of Land and the Contract of Sale 24 2.3 Expropriation of the Property at Fekruna Bay 27 Public Purpose and Initial Proceedings 27 The Setting Up of the Property Evaluation Committee 29 Initial Proceedings of the Property Evaluation Committee 30 Initial Negotiations 31 An Application for Development and Relevant MEPA Policies 33 The Valuations by the Fekruna Ltd Architect X 35 Property Evaluation Committee Analysis of the Valuation by the Fekruna Ltd Architect X 37 Va l u a ti o n o b t a i n e d b y t h e P r o p e r t y Ev a l u a ti o n C o m m i tt e e : A r c h i t e c t D 39 Va l u a ti o n o b t a i n e d b y t h e P r o p e r t y Ev a l u a ti o n C o m m i tt e e : A r c h i t e c t E 41 2.4 Ministerial Approval 42 2 . 5 Va l u a ti o n o f L a n d s G ra n t e d i n E xc h a n g e fo r t h e P ro p e r t y a t F e k r u n a B ay 42 Va l u a ti o n s o f t h e S a n Ġ w a n n a n d S w i e q i S i t e s b y A r c h i t e c t D a n d I s s u e s A r i s i n g 45 Resolution through Arbitration 47 2.6 Conclusion of the Expropriation Process 53 Contract between Government and Fekruna Ltd 59 2.7 Review by the Internal Audit and Investigations Department 60 Chapter 3 – Conclusions 67 3.1 The Facts of the Case 67 3.2 Conclusions 70 Appendix – Request by the Public Accounts Committee 77 National Audit Office - Malta 3 An Investigation of Property Transfers between 2006 and 2013: The Expropriation of the Property at Fekruna Bay, St Paul’s Bay List of Tables and Figures Table 1: Revised Valuation by the Fekruna Ltd Architect X 37 Table 2: Valuation by Architect D 40 Table 3: Sites indicated in the Non-paper by the DG GPD 43 Table 4: Proposed Valuation by the Fekruna Ltd Architect Y 51 Table 5: Comparison of Valuations 52 Table 6: Gross Value of Properties as determined by the IAID Consultants 64 Table 7: Comparison of the Property Values cited in IAID report and Contract of Exchange 66 Table 8: Timeline of Key Events 67 Figure 1: Foreshore at Fekruna Bay Expropriated in 1996 22 Figure 2: Plot A at Fekruna Bay Expropriated in 2013 58 Figure 3: Plot B at Fekruna Bay Expropriated in 2013 58 4 National Audit Office - Malta List of Abbreviations AG Auditor General CIR Commissioner of Inland Revenue CoL Commissioner of Land DG Director General ECHR European Convention on Human Rights ECtHR European Court of Human Rights EIA Environmental Impact Assessment EMD Estate Management Department EPD Environment Protection Directorate GPD Government Property Department IAID Internal Audit and Investigations Department LAB Land Arbitration Board MEPA Malta Environment and Planning Authority MFCC Ministry for Fair Competition, Small Business and Consumers MFEI Ministry of Finance, the Economy and Investment MJCL Ministry for Justice, Culture and Local Government MRRA Ministry for Resources and Rural Affairs MTCE Ministry for Tourism, Culture and the Environment NAO National Audit Office NHLP North Harbours Local Plan NWLP North West Local Plan NWSP North West St Paul’s Bay OPM Office of the Prime Minister PAC Public Accounts Committee PEC Property Evaluation Committee PS Parliamentary Secretary National Audit Office - Malta 5 An Investigation of Property Transfers between 2006 and 2013: The Expropriation of the Property at Fekruna Bay, St Paul’s Bay Executive Summary 1. On 23 June 2015, the four Government Members of Parliament on the Public Accounts Committee (PAC) requested the Auditor General to investigate the expropriation of the site at Fekruna Bay, St Paul’s Bay. The PAC specifically requested the National Audit Office (NAO) to ascertain whether the principles of good governance, value for money, transparency and accountability were respected, and that no political pressure was exerted with respect to this expropriation. Aside from the site at Fekruna Bay, reference was made to another three property transfers involving Government undertaken between 2006 and 2013. Two of the properties were separately reported on in December 2016, while the other is addressed in another report being issued contemporaneously. 2. The site at Fekruna Bay subject to this audit comprised the former Mare d’Oro Restaurant, property of Fekruna Ltd. In 1996, Government had expropriated adjacent land of 1,347 square metres, also property of Fekruna Ltd. This land, forming part of the foreshore, was required by Government to ensure public access to the Bay. Following the resolution of a court case, instituted by the Company shortly thereafter and determined on appeal in 2004, Government acquired the foreshore in 2007 against payment of €1,174,046. 3. After the conclusion of the acquisition of the foreshore, proceedings for the expropriation of the Mare d’Oro Restaurant were initiated when, in January 2010, the Director General (DG) Government Property Department (GPD) informed Fekruna Ltd that Government was considering the acquisition of this property. At the outset, the GPD indicated that Government was willing to acquire the property through the exchange of land, and that a Committee, the Property Evaluation Committee (PEC) had been set up to undertake negotiations. While the valuation submitted by Fekruna Ltd ranged between €6,750,000 and €7,500,000, the PEC established the value of the property at €5,000,000. Ministerial authorisation was granted to the PEC in October 2010 by the Minister of Finance, the Economy and Investment (Minister MFEI) and the Parliamentary Secretary Revenues and Land, wherein the Committee was to proceed with negotiations on the basis of the established value and to commence procedures for the identification of land of equivalent value that could be exchanged for this property. 4. Government-owned land at San Ġwann and Swieqi, measuring 3,012 and 2,630 square metres respectively, were identified for exchange by the GPD and valued by an architect appointed by the Department. Fekruna Ltd disagreed with the assigned values, which led the DG GPD to propose resolution through arbitration. To this end, an Arbitration Committee was established, composed of architects representing Government and the Company as members, and a chair nominated by the GPD. In November 2012, the Arbitration Committee submitted its report, valuing the San Ġwann site at €2,465,000 and the Swieqi site at €1,806,583. 6 National Audit Office - Malta 5. The Minister for Fair Competition, Small Business and Consumers (Minister MFCC) approved the expropriation of the Fekruna Bay property, the exchange of the land at San Ġwann and Swieqi, and the sourcing of funds for the remaining balance of compensation due from the MFEI in December 2012. A contract of exchange was entered into by Government and Fekruna Ltd on 5 March 2013, by means of which Government acquired the property at Fekruna Bay, valued at €4,972,007, and transferred the land at San Ġwann and Swieqi, in aggregate valued at €4,271,583 to Fekruna Ltd. The difference, amounting to €700,424, in Executive Summary Executive favour of Fekruna Ltd was offset against amounts due to Government by the Company in lieu of capital gains tax and duty on documents. 6. The fundamental requirement for an expropriation is that the land acquired by Government is to serve a public purpose. In the case of the expropriation of the Fekruna Bay property, the public purpose that was to be served was intrinsically tied to Government’s efforts to acquire land outside development boundaries so as to be returned to its original state, to ensure better public access and preserve it for future generations. Other sites of interest to Government in this regard had been identified by the Office of the Prime Minister and the Malta Environment and Planning Authority (MEPA), although negotiations for their acquisition had stalled for various reasons beyond Government’s control or due to budgetary constraints.