Enemalta chairman 'failed to avoid conflict of interest' - Auditor General

The Auditor General presented his office’s findings on Monday evening of a supplementary investigation into the Delimara power station tender, awarded to Danish firm BSWC last year.

In the report, the Auditor General's Office (NAO) noted that in the case of the Enemalta tender, it was clear that former Enemalta chairman Alex Tranter, through his employment with BWSC subcontractor Vassallo Builders, did have "financial and other interests [that were] likely to affect prejudicially the discharge of him by his function" not only as a member of the board but also as chairman.

The NAO concluded that the action taken by Tranter to eliminate grounds of conflict of interest “were not sufficiently effective, consisting solely as they did of a declaration of conflict of interest and the subsequent distancing from matters related to the tender.”

The NAO added that he had failed to “avoid any actual, perceived, or potential, conflict of interests at all costs.”

The NAO also investigated how government, Enemalta, BSWC and BSWC’s local representative Vassallo Builders all made use of the same legal services by Grech Vella Tortell Hzyler Advocates (GVTH).

In its report, the NAO said that the BSWC had informed it that it had consulted GVTH only once in June 2009, and from August 2009 onwards on issues such as media coverage of the contract and the Delimara extension project. “All matters relating to the setting up of a local daughter company had been handled by (auditors) KPMG,” BSWC told the NAO.

GVTH however submitted a second communication to the NAO on 21 March 2011, which “added a statement to the effect that the firm had never acted as legal advisor to government in connection with the Enemalta Delimara Power Station contract.”

However, the NAO noted that GVTH, particularly the firm’s partner who had served as Enemalta’s external consultant (till January 2008), was legal advisor to BSWC’s local representative as of August 2009.

“NAO expresses concern in that the legal advisor in question could end up in a difficult position when tendering legal advice to the BSWC local representative should any such advice be based, consciously or unconsciously, on knowledge that the same legal advisor would have gained in his twenty years’ service to the EMC.”

Tendering should have been “aborted and restarted”

The NAO also noted the changes in tender specifications which were done halfway during the tendering process, “impinging directly and in a very significant manner on bid ranking during the evaluation process and adjudication process.”

“The report further described how such amendments, carried out with the Department of Contracts’ go-ahead, were made despite the fact that applicable emission limits, with which bidders were to comply, were defined specifically in the tender document,” the NAO added.

“In the NAO report, the office had opined that a greater degree of transparency and equity would have prevailed, despite inherent implications of time and cost, had the tendering process been aborted and restarted,” the NAO said.

Procuring entities unable to disqualify criminal bidders

The NAO also looked into claims by the Opposition that BSWC’s contractors, involved in the Power Station extension project, “are involved in serious cases of corruption, fraud, or money laundering.”

However, the NAO found that regulations that charge procuring entities and subcontractors (in this case, Enemalta) with excluding bidders convicted of various forms of criminal, fraudulent and corrupt practices “was rendered ineffective in the public procurement of water, energy, transport, and postal services through legal Notice 178 (2005).”

The NAO also notes that regulations “obliges contractors to ensure that any sub-contractors they deal with on the project are sufficiently qualified to carry out the assigned tasks, but does not likewise impose any of the selective criteria dealing with professional conduct on same sub-contractors.”

The NAO concluded that there are no legal instruments that obliged “Enemalta, the Department of Contracts, and/or the authorities in general to take any remedial action in connection with any instance of professional misconduct, proven or otherwise, on the part of sub-contractors chosen by BSWC in its implementation of the Enemalta Delimara Power Station contract.”

NAO raps Enemalta on direct orders to KPMG

The NAO noted that the auditing firm KPMG was responsible for auditing both BSWC and Sumimoto Mitsui Banking Corporation.

“The concer apart from depicting KPMG’s business relationship with BSWC and SMBC, also refers to Malta government’s assignment of KPMG in connection with the study concerning price increases of electricity of water tariffs.”

The NAO also provided details of direct orders of KPMG commissions which were numerous in number and also heft in terms of the commission amounts. It remarked that it “is wary of direct orders of any type especially when substantial amounts are involved, that are issued by direct order.”

Referring to Enemalta’s justification that ‘it was felt that this field is very specialised and KPMG were considered to possess the required resources and competencies,” the NAO noted that “specialised fields may still very well be handled and indeed should be handled, through competitive processes as contemplated by the public procurement regulations.”

It added that “recourse to procurement via direct order should only be on an exceptional basis, rather than by default... compliance failure invariably leads to a lack of perceived transparency and equity in the public procurement mechanism across the whole of government.”

The NAO said that despite Enemalta having obtained approval by the government for the commissions, the records “highlight discrepancies between the amounts for which Enemalta sought and obtained Ministerial approval, and the corresponding amounts eventually invoiced and paid out on each assignment.”

“Enemalta’s commission to KPMG to carry out the utilities rate study was still deemed by NAO to merit further investigation,” it said.

In its reaction, the Labour Party said that the report “confirms serious deficiencies in how the (Delimara Power Station Extension) contract was awarded to Japanese firm BSWC based in Denmark.”

It said that the Officer of the Auditor General said that “it is very lacking that the contracting conditions were such that the authorities could not stop BSWC from subcontracting companies such as Siemens, Pauwerls, ABB, and Warstila, who were all found guilty of bribery of government ministers and officials to win power station contracts in other countries.”

The PL added that the report also confirmed that the same legal firm who has provided Enemalta with consultancy services for 20 years has a lawyer within it who is also a legal representative for BSWC, which was given a contract by Enemalta.

It also said the report confirmed that Enemalta Chairman Alex Tranter “should have resigned immediately, as he works with local contractor Zaren Vassallo, who was given a contract by BSWC to build part of the power station.”

It added that the report also confirms how technical, legal, and administrative changes were carried out all throughout the tendering process “such as the changes in environment law, the changes in tender specifications, and the changes in policy, which served to ensure that BSCW can win the contract instead of being eliminated “as should have happened if things were done properly.”

The PL also pointed to a “new fact” that was revealed in parliament: that Enemalta has not yet signed a maintenance agreement with BSWC.

It said that the fact that such an agreement has not yet been signed, a full two years after the company was awarded the tender, adding that the original 18 million maintenance price tag was a leading factor in BSWC’s tendering ‘victory’.

“This means that when the maintenance agreement is eventually signed, it will amount to more than the €18 million price tag which helped BSWC to win the power station extension contract,” the PL said.