Government had pushed through a parliamentary resolution to remove conditions on land in Sliema acquired by the Fortina Group which saw the private sector entity pay millions less than what an audit firm had valued, the National Audit Office has found.

In 1991, 1996 and 2000, the Government sold several parcels of land in Sliema to Fortel Services Ltd to allow for the extension of the Fortina Hotel. In April 2017 and December 2018, Fortina requested the waiver of conditions restricting use and development, the NAO said.

In July 2019, the Government consented to the rescission of the waivers that burdened the site of the Fortina Hotel against the payment of €1,000,000 up front and €7,100,000 over a maximum of 10 years from the date of the Deed.

In essence, the several height and use restrictions that emanated from the Deeds of 1991, 1996 and 2000, through which the Government originally transferred public land to Fortina, were rescinded through the 2019 Deed, the National Audit Office said in a report. But an audit had found that the value assigned was €18,341,559, revised to €23,887,942 if the Lands Authority consented to the deferral of payment until the development's completion.

The process of rescission was triggered by a request made by Fortina in April 2017, extended in December 2018 to allow for residential, commercial and office development on the site originally granted for tourism purposes, the NAO said.

It was the responsibility of the Lands Authority to determine the value of the rescissions to be granted by the Government, the NAO added. The NAO said that the terms of reference provided to the Architects tasked by Lands Authority were "grossly inadequate, as these did not consider all requests for waiver made by Fortina."

"Although the terms of reference set by the Lands Authority were not documented, the Architects Lands Authority asserted that they were instructed to only value one part of the site by the former CEO Lands Authority, a fact that was not contested by the Authority," the NAO said.

"The Lands Authority's failure to establish terms of reference that adequately reflected the requests submitted by Fortina and what was eventually disposed of by the Government set the process off in an inauspicious manner. This failure in governance on the part of the former CEO Lands Authority is a matter of grave concern to the NAO; however, this is partially mitigated by the fact that primarily the Board of Governors (BoG) Lands Authority and others were made aware of the incomplete valuation yet either did not take or follow through on corrective action."

While the valuation by the Architects of the Lands Authority, dated October 2017, established that the Lands Authority was to levy a charge of €12,167,000 for the rescission of certain limitations on part of the Fortina site measuring 565 square metres, this valuation was revised to €8,100,000 by the Architects of the Lands Authority in April 2018, the NAO said. The NAO established that the valuation by the Architects was revised following changes proposed by the former CEO of the Lands Authority.

The NAO noted that the 565 square metres valued at €8,100,000 by the architects was one of four sites for which waivers were requested. "Out of the three sites not valued by the Lands Authority, two had a monetary value, and measured 625 square metres and 23 square metres, while for the third, which measured 705 square metres, no charge ought to have been levied by the Government. It is with grave concern that the NAO noted that the former CEO Lands Authority did not request the Architects Lands Authority to establish compensation for all parts of the site over which the Government could levy a charge for the lifting of restrictions."

The NAO said that following the resignation of the CEO in 2018 and the conflict of interest declared by the incoming CEO, the BoG assumed an active role in the processing of the Fortina request. By end 2018, the BoG established that not all waivers had been valued and that duty on documents had been anomalously deducted, the NAO said. Despite no record of exchanges between the Lands Authority and Fortina, in February 2019, the latter submitted a counterproposal of €2,700,000 to the Authority's valuation, drawing attention to the parts of the site not valued by the former, it added. No explanation was provided by either party as to how Fortina obtained the Lands Authority's valuation, the NAO said.

"It was with concern that the NAO noted that, prior to the BoG Lands Authority meeting held on 8 February 2019, the valuation prepared by the Architects Lands Authority had somehow been forwarded to Fortina."

"Another aspect of concern regarding Fortina's counterproposal, discussed by the BoG Lands Authority in its meeting of 8 February 2019, was that no Board member questioned how a 'counterproposal' had been submitted in the absence of any proposal made by the Lands Authority."

The NAO said that aware of the gaps in what was valued by the Lands Authority, in March 2019, the BoG engaged an audit firm to value all waivers requested by Fortina.

"Unprompted, on 10 June 2019, Fortina informed the BoG that it agreed to pay the Government €8,100,000 in settlement of the waivers. This was discussed by the BoG on 14 June 2019, with the Board resolving to forward the relevant documentation for the consideration of the Minister despite acknowledging that the audit firm's valuation was still pending. Of concern to the NAO was how agreement was reached with no apparent exchanges between the parties and the significant divergence in the values assigned. Moreover, the BoG's decision to notify the Minister was deemed illogical as the gaps in valuation remained unaddressed."

On 17 June 2019, the Chair BoG wrote to the Minister and the Parliamentary Secretary reflecting the position of the Board. The NAO noted that this correspondence did not fulfil the Board's obligations under the Lands Authority Act, which mandated the BoG to make a recommendation to the Minister.

Despite what was recorded in the BoG minutes, the NAO ascertained that the audit firm's valuation report was submitted to the Chair. The value assigned by the firm was €18,341,559, revised to €23,887,942 if the Lands Authority consented to the deferral of payment until the development's completion. An independent valuation undertaken by the NAO confirmed that the rescission of the conditions was valued at €21,000,000, the NAO said. "The NAO's gravest concerns emerge, as the valuation withheld by the Chair was ultimately detrimental to the public interest," the NAO statement read. The chairman at the time was former judge Lino Farrugia Sacco, who has since passed away.

In the report, the NAO said that although the audit firm's valuation report was addressed to the BoG Lands Authority, the NAO established that the report was withheld from the Board by the Chair BoG Lands Authority. "The NAO's gravest concerns emerge in this respect. Based on the evidence reviewed, the NAO concluded that the Chair's assertion that the report remained pending was false. This misrepresentation served the interests of third parties rather than the public interest. Evidence obtained by this Office indicated that the Chair acted with intent to suppress the report, for he informed the audit firm that the substantially higher value resulting from the comprehensive valuation of the requested waivers would create difficulties. Through his actions, the Chair BoG Lands Authority misled the Board, the Minister, the Parliamentary Secretary, and ultimately Parliament, when he falsely documented that the report was still pending when, in fact, it was already in his possession.

Following the conclusion of its engagement, the audit firm issued an invoice to the Lands Authority on 12 April 2019 for the remaining 80 per cent of its fee, as 20 per cent had been settled by the Authority on engagement, the NAO said. However, the audit firm informed the NAO that the Chair BoG of the Lands Authority had instructed it to invoice the OPM instead and refer same for the attention of the Chief of Staff OPM. "Shortly thereafter, the Chief of Staff OPM convened a meeting with the audit firm." The OPM Chief of Staff at the time was Keith Schembri.

The NAO said that it considered the involvement of the Chief of Staff OPM in settling fees owed by the Lands Authority to the audit firm as anomalous and questionable.

"While the Chief of Staff OPM claimed to have no recollection of key developments relating to his involvement and denied authorising payments, this Office obtained evidence to the contrary. Though the involvement of the Chief of Staff OPM may appear innocuous when viewed in isolation, a more troubling understanding emerges when considered alongside other shortcomings. Firstly, the NAO reasoned that, other than the Chair BoG Lands Authority, the Chief of Staff OPM was another Government official who was aware of the audit firm's valuation. Secondly, there was no functional link between the role of the Chief of Staff OPM and the settlement of fees due by the Lands Authority. The NAO viewed the redirection of the invoice by the Chair BoG Lands Authority and the involvement of the Chief of Staff OPM when authorising payment as part of an effort to obscure the receipt of the valuation by the audit firm. Thirdly, the uniqueness of the circumstances surrounding the case would ordinarily facilitate recollection, as demonstrated by the audit firm in its recall of its meeting with the Chief of Staff OPM. His claim of no memory of such a meeting was, in the NAO's view, questionable."

Regarding the valuation by the audit firm, the Parliamentary Secretary responsible for the authority at the time stated that he was unaware it had been submitted to the Chair BoG Lands Authority and that the Chair had never brought the report to his attention. "In turn, the Minister questioned why, in the correspondence dated 17 June 2019, the Chair BoG Lands Authority informed him that the audit firm's valuation was still pending, when in fact it was not."

"In further testimony to the NAO on the matter, the Minister stated that he was uncertain as to when he became aware of the audit firm's valuation, whether this awareness arose from discussions with the Chair BoG Lands Authority immediately following receipt of the correspondence or after the debate in Parliament in July 2019. According to the Minister, on learning of the audit firm's valuation, he sought clarification from the Chair BoG Lands Authority. The Minister alleged that the Chair informed him that the report had been commissioned to determine whether a further valuation was required, that it was flawed, that it was to be disregarded, that it had not been received, and that the Authority had opted to proceed with the valuation already in its possession. The NAO observed that the claims that the report was defective and that it had not been received were contradictory. Although the Minister acknowledged this contradiction, the issue remained unquestioned."

The NAO said that following referral to the Minister and the Parliamentary Secretary, a memorandum was submitted to and endorsed by Cabinet on 27 June 2019. "A parliamentary resolution was referred to the NAO Accounts Committee and since unanimous agreement was not reached, in line with parliamentary procedure, the matter was referred to Plenary. On 17 July 2019, Plenary approved the rescission of the requested conditions against payment of €8,100,000. The relevant Deed was entered into on 26 July 2019. The main responsibility for the deficiencies noted lies with the Lands Authority, even though to a much lesser degree this onus extends beyond the Authority, since the process leading to the Deed with Fortina ultimately involved other stakeholders."

The Government's consent to waive development limitations on the site resulted in a substantial increase in the site's value to the benefit of Fortina, the NAO said. "While the Lands Authority established a residual land value of €8,100,000, the NAO's valuation stood significantly higher at €21,000,000. Two key factors account for this discrepancy. Firstly, the NAO's valuation was based on 2019 rates whereas the Lands Authority relied on 2017 rates, "and more critically, the NAO valued all the waivers sought by Fortina, while the Lands Authority limited its valuation to only one part of the site," the NAO said.

"The discrepancy between the valuations clearly indicated that a true and fair value for the concession to Fortina through the lifting of conditions restricting development was not secured."

"The difference between the value assigned by the NAO and that determined by the Government for the waiving of conditions on the portions of the site previously acquired from the Government amounted to €12,900,000."

"While this Office recognises that property valuations involve a degree of subjectivity, the NAO asserts that subjectivity cannot be cited as a reasonable explanation for the extent of the disparity noted."