Auditor General questions regularity of ITS land transfer to DB group

The National Audit Office has cast doubts on the “regularity” of the tender for the disposal of the ITS site to the DB Group issued by Projects Malta five years ago.

The NAO said that Projects Malta had failed to obtain authorisation from the Contracts Department before issuing a request for proposals in November 2015 for the design, build and operation of a mixed tourism and leisure development on the site occupied by the Institute of Tourism Studies.

“This omission casts doubt on the regularity of the RFP,” the NAO said in its report tabled in Parliament on Wednesday.

The report also noted that the residential component of the project, which was key in securing its viability, was given “limited exposure” in government’s call. The DB Group was the only bidder.

‘Grave concern’

The NAO said the Office of the Prime Minister and the Tourism Ministry passed the buck between them when asked which entity decided to dispose of the ITS land.

“In terms of governance, the origin of the decision to dispose of the site remained unclear, which was of grave concern given the nature of the land that was to be disposed of. No information supporting this decision or who was involved was provided, with the Office of the Prime Minister and the Ministry of Tourism each assigning responsibility to the other,” the NAO said.

The audit office had been asked in March 2017 to investigate the controversial land concession awarded to the DB Group after the deal with government was finalised at a value of €56 million.

The NAO noted that the Government Property Department was also absent from the process that led to the disposal of the site, despite the department being the government entity mandated to dispose of public land.

“Projects Malta Ltd assumed control over the process in its stead,” the NAO said.

Projects Malta was a government entity set up after the 2013 election and entrusted to then minister Konrad Mizzi. It was responsible for government’s major projects, including the multi-million euro hospitals concession awarded to Vitals Global Healthcare.

Site valuation

The NAO valued the ITS site in 2016 at €67 million, which was €11 million more than that agreed on the deed between the government and DB.

However, the NAO said the deed also allowed for an adjustment in the value of the site based on the extent of the development approved by the Planning Authority. 

The NAO said that the development application approved in 2018 by the PA represented a significantly downscaled project, with one residential tower instead of two and a reduction in the hotel element.

“In consideration of these revisions, the NAO established a land value of €45 million. The Office’s valuation of €45 million corresponds with the valuation that was to be derived through the application of the parameters stipulated in the deed. The reduction in value was mainly attributable to the reduced extent of development and a substantial increase in development costs between 2016 and 2018,” the NAO said.

No records

However, the NAO said it had major concerns with respect to the negotiation committee that engaged in talks with the company after it was selected as the preferred bidder.

“No records of negotiations were made available, which constrained the NAO from establishing a comprehensive understanding of the negotiation process and grossly detracted from the expected level of governance,” the audit office said.

The NAO also hit out at the “inappropriately planned” relocation of the tourism school to accommodate government’s plans for the area.

The decision to dispose of the ITS site was “inappropriately prioritised” over the relocation of the ITS, which led the tourism school to be temporarily be transferred to a site in Luqa until the Smart City campus is built.

Government had to spend €2 million to refurbish the Luqa campus.

“The false sense of urgency that drove government to dispose of the site, despite that no alternative premises had yet been secured for the ITS and the lack of a development masterplan for the area, was of concern,” the NAO said.

The land transfer in brief

In November 2015, Projects Malta Ltd issued a request for proposals for the design, build and operation of a mixed tourism and leisure development in St Julian’s on the site occupied by the Institute of Tourism Studies.

In February 2016, the Seabank Consortium, the sole bidder, was nominated the preferred bidder with a €17 million bid.

Negotiations between government and the consortium ended in January 2017, with Cabinet endorsing the €56 million value established by Deloitte that was assisting government.

On 1 February 2017, the Land Commissioner and dbSG, the company formed by the consortium, entered into a deed for 99 years.

The Planning Authority approved the application by dbSG in September 2018 but the Appeals Court deemed the permit null in June 2019.

In July 2019, the dbSG submitted a fresh application for excavation works while the original application was still active.

The National Audit Office (NAO) was requested to review the land transfer by the Public Accounts Committee in March 2017. The audit commenced in January 2019.