DB Project: Letter to State Aid Monitoring Board and Malta Competition and Consumer Affairs Authority (MCCAA)

Following my letter to the European Commissioner for Competition, I have also written to the State Aid Monitoring Board and the Malta Competition and Consumer Affairs Authority:

To the State Aid Monitoring Board and the Malta Competition and Consumer Affairs Authority:

Subject:  Pembroke “City Centre” — Transfer of public land to private company — compatibility with state aid rules  

With the present letter I would like to make you aware of the situation concerning the sale of public land from the Maltese Government to the company db San Gorg Property Ltd in St George’s Bay, locality St. Julian’s, in the context of the Pembroke “City Centre” development project. Such transfer raises significant suspicion to be in contradiction with Maltese and EU state aid rules.

The European Commission has noted on 18 October 2018 that such transfer of land “has not been notified to the Commission by the Maltese authorities, nor has any competitor of San Gorg Property Ltd submitted a complaint in relation to that transfer. Consequently, the Commission is not in a position to pronounce itself on whether that transfer resulted in the grant of state aid by the Malta to San Gorg Property Ltd within the meaning of Article 107 of the Treaty on the Functioning of the European Union (TFEU).”

The Commission also mentioned that “as a general principle, the mere fact that a public tender process is not carried out is, in itself insufficient to conclude that a transfer such as this entails the grant of state aid. What ultimately matters is whether the public authority acted in its capacity as a private seller in concluding the transaction and that the land was sold to the buyer at a market price.”[1]

With the present letter I would like to raise your attention to the transaction at stake, which may consist of non-notified aid, and invite you to examine such aid without delay, as foreseen by the legislation, and, should there be the grounded suspicion that it may constitute unlawful state aid, to require the provider to suspend such aid until the board issues its opinion (Subsidiary Legislation 325.07: State Aid Monitoring Regulations, paragraphs 7 to 10).[2]

I invite you to investigate further into whether the Maltese Government did indeed act as a private seller and sold the land at market price, as this might not be the case.

- Short summary of the facts

In November 2015 Projects Malta, a State agency, issued a Request for Proposals for the design, building and operation of an upmarket mixed tourism and leisure development at St George’s Bay with the intention of awarding a 99-year concession for the site currently occupied by the Institute of Tourism Studies (ITS).

No formal tender was issued as per EU procurement regulations, but only a request for proposals. Only the db group submitted a formal proposal despite the Corinthia Group – owners of three hotels in the area – having originally also shown an interest in the government concession. In February 2016, the government announced the db Group as the preferred bidder and started formal negotiations, announcing that the company would be paying 60 million EUR for the land.

In February 2017, the Maltese Government transferred 24 000 square metres of public land at the prime seafront location St George’s Bay, locality St. Julian’s, to the company db San Gorg Property Ltd, in return for a total of 15 million EUR payable over a span of 7 years. No interest will be charged.

- Did the government act as a private seller?

The Maltese Government did not issue a formal tender. Although not a sufficient condition, this makes it more likely to conclude a such transfer entails the grant of state aid. The absence of competitors also raises the suspicion that the sale was dealt with as a “deal among friends” rather than based on market procedures.  

- Was the land sold at market value?

The Maltese Government claims that the valuation of the land for a total of 15 million EUR was based “on an innovative model” designed by audit firm Deloitte, which has not been made public.

The market value of the public land being transferred to private property is by all indicators much higher than the 15 million EUR negotiated by the authorities. The Government’s own master plan for the area reports a value of 8 500 EUR per square metre,[3] which would amount to a total of 204 million EUR for the land at stake.

There are thus indications that – through a discounted valuation of the public land involved - the private project has received state funds, directly or indirectly, to improve its profitability and therefore it is likely to contravene the state aid provision that state resources, in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings shall, in so far as it affects trade between Member States, be incompatible with the common market.[4]

- Conclusions

The “City Centre” project will have a very big impact on the whole North Harbour area of Malta.

In this regard, it is important that the MCCAA – in cooperation with the European Commission – ensures conformity to Maltese law, EU law and the rule of law in the procedure.

I therefore encourage the State Aid Monitoring Board and the Competition and Consumers Affairs Authority to:

- examine without delay the non-notified transaction at stake;

- confirm whether project has received state funds directly or indirectly to improve its profitability and thus contravene the State Aid provision that state resources, in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market. (Subsidiary Legislation 325.07: State Aid Monitoring Regulations).

- ask the Government of Malta, as provider of non-notified aid, to make its submissions about the said transaction, also including the specific formulas used in the Deloitte valuation method in order for your services to evaluate whether the price of the sale of public land corresponds to market value, also in relation to what included in the Paceville Master Plan, and whether the government acted in its capacity as a private seller;

- should you  find the grounded suspicion that the transaction may constitute unlawful state aid, to require the Government of Malta, as provider, to suspend such aid until the board issues its opinion;

- conclude whether the transaction is in compliance with Maltese and EU state aids rules, or not; and

- should you find that the transaction constitute unlawful state aid, to require the Government of Malta, as provider, to recover any state aid unlawfully provided to db San Gorg Property Ltd via a discounted valuation of public land.

Kindest regards,

Dr Michael Briguglio

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[1] http://www.europarl.europa.eu/doceo/document/P-8-2018-004598-ASW_EN.html

[2] Subsidiary Legislation 325.07: State Aid Monitoring Regulations:

“7. Where  the  Board  becomes  aware  of  non-notified  aid,  it shall start examining such aid without delay.

8. The  Board  may,  after  giving  the  provider  of  non-notified aid the opportunity to make its submissions, require the said provider to suspend such aid until the Board issues its opinion.

9. Unlawful  aid  shall  be  recovered  by  the  provider  of  aid  in line with article 14 of the Council Regulation.

10. Where the provider of aid fails to comply with the opinion of the Board, or with any provision of these regulations, the Board shall refer the matter to the Minister responsible for the provider of such aid.”

http://justiceservices.gov.mt/DownloadDocument.aspx?app=lom&itemid=9792&l=1

[3] Paceville Master Plan: https://www.pa.org.mt/Documents/PacevilleIntegratedDevelopmentFramework.pdf

[4] Subsidiary Legislation 325.07: State Aid Monitoring Regulations: “3.(1) Any   aid   granted   by   the   State   or   through   State resources, in any form whatsoever, which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.”

The local councils reform - Michael Briguglio

Times of Malta, 29 October 2018

One of the government’s proposals is to start referring to this level of governance as local government, thus incorporating local and regional councils. The latter have been allocated €3 million in next year’s budget and their president will be elected by local councillors.

The White Paper proposes a change from five to six regional councils. The government’s declared reasoning is to have a better sense of geographical governance, which can facilitate the awarding of contracts, the management of services and the application of EU funds.

For example, it is being proposed that waste management contracts should be awarded at regional level, thus theoretically enabling economies of scale and better coordination. Also, the White Paper does not tell us whether the regions are being organised in a way to favour labour regional majorities and therefore easier election of Labour presidents.

The government is also proposing to have better assistance to local councils on matters such as EU funding, scholarly research on regional matters and research and follow-ups on residents’ complaints. If applied well, this can help facilitate evidence-based policymaking.

Local councils will also be able to employ persons without authorisation from the respective minister and to improve workers’ skills through training and retraining. At the same time, the White Paper is not proposing anything to improve their working conditions.

Other proposals mentioned in the White Paper include stronger social, educational, integration, management and communitarian responsibilities for local councils. While these proposals are worthy, many are already in place and would improve if the government reverses the trend of centralising power in ministers’ hands.

I would have also expected the government to support the devolution of land such as for example public car parks, many of which are currently subject to illegal private ‘tipping’. Imagine if such revenue can be used for local needs instead.

The White Paper fails to say that local council authority over roads has practically been taken over by the government. Indeed, traffic management and accessible pavements are conspicuous by their absence in the document.

On a positive note, elderly people get a number of mentions. One example is assistance to local councils for projects related to this demographic category. Loneliness, cost of living, social exclusion, accessibility and illness are indeed key issues related to the elderly today.

In the meantime, wardens will now be known as community officers and will have a stronger educational role and less of a disciplinary role in terms of contraventions. What the White Paper does not say is that wardens have been centralised into a government department, meaning that councils have less say on the deployment of such personnel.

I am also disappointed that the 16 administrative committees that were established in 2010 will be abolished. The government is criticising their functioning and is instead proposing the facility to establish subcommittees. If one extends this argument, even some local councils are not functioning well, but it is up to the electorate to judge. Shouldn’t the same happen for administrative committees?

Unresolved matters include whether mayors should have full-time roles, whether they should have a maximum term of three legislatures and whether 16-year-olds who contest local council elections could become mayors themselves. In this regard, I propose a partisan truce between political parties so that the issue is decided upon through cross-party consensus.

Some other absences in the White Paper are issues such as security and community policing. I would also have expected the White Paper to give prominence to council financing. In this regard, the Opposition had proposed solutions without increasing tax, such as shifting some income from government services and tourism to councils.

Finally, the White Paper does not scrutinise the administration of the national urban development fund. A few days ago, One News reported that a substantial €28 million are available within it for council usage. However, I am informed that funds for certain councils seem to have decreased substantially. A fully audited and transparent revenue and expenditure statement by the Planning Authority would be most welcome.