Dalli explains Cachia Caruana's role in Brussels property purchase

Former Minister John Dalli told the Public Accounts Committee yesterday that he had written in the press that the Malta House purchase in Brussels was "conceived, controlled and pushed" by Richard Cachia Caruana because, as Malta's permanent representative, it was Mr Cachia Caruana's duty to see that his staff were appropriately housed.

Mr Dalli was replying to questions by the Public Accounts Committee at the end of three days of hearings on the process used for the purchase of a property at 25 Rue Archimede, Brussels, which will house the Maltese mission to the EU and the embassy to Brussels.

Mr Dalli had been expected to appear before the committee on Monday but was held up by meetings in Libya. He went straight to the committee hearing yesterday just after 9 p.m. as soon as he flew in from Tripoli.

Mr Dalli said his comment about Mr Cachia Caruana was in reply to an article by Joe Grima who on July 25 had asked whether the purchase was Mr Dalli's last fling.

Mr Dalli had written that: "the Brussels property project was conceived, controlled and pushed by the Permanent Representative in Brussels.

"The choice of the site and its eventual change were his responsibility."

Public Investments Minister Austin Gatt, a member of the committee, asked Mr Dalli whether he was correct in his interprepation that Mr Cachia Caruana was the owner of the project but was not necessarily involved in the day-to-day decisions.

Mr Dalli said that it was Mr Cachia Caruana's responsability to see that his staff were appropriately housed. Had he not done so, he would have failed in his reponsibility.

Everybody, he said, could give his own interprepation.

Asked whether he agreed with the Cabinet's decision to buy the property, at Archimede 25, taken in his absence when he was abroad, Mr Dalli said that he would like to see all the documentation as to how the Cabinet arrived at that decision. Nonetheless, he had always maintained that it should be the government's policy to buy the properties used for its embassies abroad rather than rent them. This made financial sense.

Leo Brincat (MLP) said that public opinion of Mr Dalli's letter in the press differed from the interpretation he was giving now.

Mr Dalli said that he had agrred with the choice of Albert Mizzi to head the final phase of the negotiations for the property purchase, as well as the choice of Mimcol to do the necessary evaluations.

The permanent secretary at the Finance Ministry had been monitoring the situation and therefore it was not right to say that his ministry was not involved. The ministry had the onus of finding ways to finance the project.

The government was involved directly through Mimcol, as this agency was wholly owned by the government. The Finance Ministry itself did not have the right people who could assess property abroad.

Asked whether he thought that the Cabinet's direct order to buy the property was contary to financial regulations, Mr Dalli said that he would have taken the same decision. This (the financial regulations) was an archaic attitude which was crippling the government. No call for tender was ever issued for the purchase of property abroad, by any government.

Mr Dalli said that initially he was not aware that the property was bigger than required.

Mr Brincat asked Mr Dalli if he, as foreign minister, had been informed of all the procedures taking place for the purchase of the property. Did he not think it strange that the permanent secretary and the director of corporate services were not involved more, as had been the practice in the past?

Mr Dalli said that the process regarding this property was completely different. He knew that the process was going on. He did not need the details as he knew the process was being managed by competent people. Although he was generally informed of the process he had not been given the details.

Earlier, the committee yesterday heard Mimcol chairman Ivan Falzon, who said he initially made inquiries on the properties at Archimede 25 and Schuman 11 so that he could compare prices with those of another property, Archimede 1, about which negotiations were already in hand.

Mr Falzon appeared before the committee accompanied by Mimcol officials Mario Mizzi and Vince Mifsud.

He said that early in June 2003 Mr Cachia Caruana, then the Prime Minister's personal assistant, asked Mimcol to coordinate the procurement of a building in Brussels for use as a new Maltese embassy to Belgium and the Maltese Representation to the EU. The building was to have a floor space of around 5,000 square metres.

Archimede 1 was mentioned as the best out of 16 buildings that had already been inspected by a representative of the Ministry of Foreign Affairs, and Mimcol was asked to consider its suitability and negotiate the deal.

Initially the exercise was to be modelled on the acquisition of Malta House in London, where the building was bought by a company which then rented it to the government.

KPMG Malta were approached but advised that their counterparts in Belgium would be better suited to help, in view of the different tax regime there. Ms Joyce O'Connor, who had coordinated and managed the Malta House London project, was also contacted, as were technical engineers in Brussels who had been recommended by lawyer Philippe Lamique. Peter Caruana Galizia was appointed legal advisor in view of his involvement in property law.

Talks were held in mid-June with the owners of Archimede 1. Problems that were identified included an extension to the underground railway system right under the building, and the high price the owners asked for. The Belgian railway authorities wanted part of the basement, the ground floor and the first floor of the building. This and the fact that there would eventually be an underground railway station exit next door would have affected the property's resale value. Besides, the owners insisted that any compensation forthcoming from the railways should be pocketed by themselves.

Mr Falzon said that on July 18 he inspected Archimede 25 and found that the owners were interested in doing business. On July 23 the owners of Archimede 1 gave Dr Caruana Galizia new conditions and said they were not ready to sell but were prepared to lease. The owners of Schuman 11 wanted to lease for 27 years.

On September 11 KPMG advised that it would be better to purchase rather than lease a property. The owners of Schuman 11 were ready to consider selling for not less than €24 million, which worked out at €350,000 per square metre. The owners of Archimede 1 asked for €15 million for the sale of the unrefurbished building, but again insisted on pocketing the compensation from Belgian Railways.

On October 18 Mimcol asked architect Michael Xuereb for advice on the refurbishment programme, before final price negotiations got underway. He was selected on the strength of his previous experience in similar work, notably at the British High Commission.

On October 24, at another meeting, Mr Cachia Caruana informed Mr Falzon that the government had decided that the price negotiations should be led by Albert Mizzi, who should be assisted to see all three buildings. Mr Falzon said he had never briefed Mr Mizzi, so he could not have influenced him.

On November 8 Mr Falzon and Mr Mifsud met Mr Mizzi, who had by then seen the properties, and he was of the opinion that Archimede 25 would be the best buy because of its strong potential and because its interior would lend itself better to partitioning.

On November 18 Mr Falzon and Mr Mifsud met Mr Cachia Caruana and reported their findings, adding that they were now being pressed to make offers. Mr Mizzi insisted that it would be better to make offers incorporating purchase and refurbishment costs.

After working on financial parameters with Mr Mizzi, Mimcol made three offers: €19 million for Archimede 1, €20 million for Archimede 25 and €21 million for Schuman 11, with all offers based on finished refurbishment.

On November 23 the owners of Archimede 25 said they were ready to sell for €15.5 million plus 16 per cent of the cost of refurbishment. This made the building the most competitive per square metre, and interest in Schuman 11 began to wane.

On December 17 a meeting was held in Malta with the owners of Archimede 1, but the conditions of payment they demanded were unacceptable and could prove to be embarrassing for the government, and Mimcol did not give an immediate reply.

On January 15 Mimcol asked for a technical report on the structure of Archimede 25. This had already been done in the early stages on Archimede 1, but Mimcol felt it would not make sense to spend good money on the report on Archimede 25 if nothing might come out of it.

On that same day Mr Falzon, Mr Mifsud and Mr Mario Mizzi prepared a draft report on number 25. The report was circulated to Mr Cachia Caruana in representation of the Office of the Prime Minister, to the Permanent Secretary at the Ministry of Finance and Economic Affairs and to the rest of the team, for comments. Mimcol told Mr Cachia Caruana the exercise was almost complete, and things were leaning towards number 25.

On January 27 the owners confirmed they were ready to accept €15.5 million for the sale and €4.37 for refurbishment, dropping their demand for 16 per cent of the refurbishment cost.

On February 9 the Cabinet appointed Mr Cachia Caruana as Malta's Permanent Representative to the EU. That same day the team concluded that Archimede 25 was the best buy at the cheapest price.

On February 16 a meeting was chaired by the Ministry of Finance and Economic Affairs and attended by Albert Mizzi, Mr Cachia Caruana, Mr Falzon, Mr Mifsud, Dr Caruana Galizia and Mr Xuereb. The team gave a presentation on its report, and the ministry gave the go-ahead to start the financing exercise. In the meantime, a report was received that there were no structural problems with Archimede 25.

The Ministry of Finance gave instructions to start negotiations. Mimcol met a number of banks and Middlesea Insurance, and requested a meeting with the Permanent Secretary at the Ministry of Finance to discuss the offers made. On April 1 Mimcol was told that the government had decided to fund the purchase itself. Considerations were made as to whether Mimcol could be used as a special purpose vehicle for the exercise.

The Cabinet changes of March 23 created a vacuum for some time. Mimcol gave the Ministry of Finance a copy of the draft purchase agreement. A meeting was held in Brussels on April 4 and 5 to clear up some outstanding details, and on May 17 Mimcol was informed that the Cabinet had approved the purchase of Archimede 25.

The purchase agreement was signed on June 25, and a meeting was held shortly thereafter to discuss space for the embassy and the permanent representation, with the remaining space being earmarked for leasing to third parties.

Answering questions by committee chairman Charles Mangion (MLP), Mr Falzon said his liaison throughout the exercise had been with Mr Cachia Caruana. He had met officials of the Ministry of Finance and Economic Affairs only in February to decide on the method of financing. His initial remit had been to discuss leasing Archimede 1, having nothing to do with the remaining 15 buildings inspected. This did not exclude the possibility of considering additional buildings, as had in fact happened.

He had approached Dr Caruana Galizia himself, and he had met Mr Xuereb at the inauguration of the British High Commission and later realised he would be the ideal choice.

In the particular circumstances of the exercise, notably the time constraints, Mimcol had not asked for quotations for collaboration. Mr Falzon said that when Mimcol was given the task to negotiate on Archimede 1, there had been no price offer. Mr Cachia Caruana had given them a rate per square metre but during the negotiation meeting they were given a different rate.

Mr Falzon said he had felt very uncomfortable as he did not know anything about market values in the area and did not have anything to compare with.

Thus, when he saw Schuman 11 he told the agent that he was also interested in them - so that he could compare prices for comparable properties in the same area. He had done so even though the government had not made a specific request to Mimcol to see those properties.

He saw the two new properties on June 16 and met the owners in August.

Dr Mangion pointed out that according to the report Mimcol had presented to the Prime Minister, the properties were first seen in August.

Mr Mario Mizzi said that during the June visit, the Mimcol representatives had only tried to understand what the owners wanted.

Mr Falzon said contact with the owners was in August.

After they made enquiries about the two properties they informed Mr Cachia Caruana. They had also informed him about the problems they had faced during the negotiations on Archimede 1.

Mr Brincat pointed out that he could not understand why Mimcol had felt the need to inform Mr Cachia Caruana about the appointment of Martin Xuereb but not about that of Dr Peter Caruana Galizia.

Mr Falzon said he had been in a meeting with Mr Cachia Caruana and had said that he intended asking Mr Xuereb to represent the government as architect.

Mr Cachia Caruana had pointed out that Mr Xuereb had worked for him, but he did not have an objection about his appointment. Mr Cachia Caruana was informed of the appointment of Dr Caruana Galizia at a later stage.

Asked what consultancy fees Mimcol had charged, Mr Mizzi said Mimcol was charged €7,155 by KPMG Belgium, €9,200 by SSA/XX, €19,196 by Dr Toussant, Lm5,500 plus VAT by Dr Caruana Galizia, Lm2,938 by Mr Xuereb and €12,266 by the notary. No brokerage was paid since the practice in Belgium was that this was paid by the seller.

Replying to other questions he said that although negotiations were initially on leasing, they had also pressed for purchase. After Albert Mizzi came into the picture, the focus was on an outright purchase.

Asked by Mr Brincat whether Mimcol felt it should put the record straight following a newspaper letter by former minister John Dalli where he said the acquisition process was initiated and handled by Mr Cachia Caruana, Mr Falzon said that it was not the practice for Mimcol to enter into polemics.

He said they had arrived at the offer for the property at Archimede 25 after they had gathered all the necessary information and studied the market trends. Moreover they had an indication of what the owners wanted.

They had met Mr Dalli on February 16, presented him with a report, explained it in detail and answered questions. Following this lengthy meeting, Mr Dalli asked them to start looking into the financing of the purchase.

Mr Falzon said that following a study of the required space, it resulted that four storeys at 25 Archimede were surplus to requirements and could be leased to third parties.

To date, no one had asked Mimcol to rent this space.

Mario Mizzi explained in reply to questions that at the time the contract was signed they did not know what the final tax assessment would be, as they were always under the impression that the whole building was to be used for diplomatic purposes.

To questions by Nationalist MP Robert Arrigo, Mr Falzon said the negotiating team was never influenced by Mr Cachia Caruana, and that it was only in Mr Xuereb's case that he had informed Mr Cachia Caruana about his appointment beforehand.

Answering questions by Dr Mario de Marco (PN), Mr Falzon said none of the four signatories of the Mimcol report to the government had disagreed with the final draft. There had been absolutely no influence on the contents of the report, except for Albert Mizzi pushing to finalise the deal because the building was also being sought by Latvia. If the boat had been missed on Archimede 25 the whole exercise would have had to be repeated because the other two had already been ruled out.

Mr Mifsud explained that over the past 20 years, leasing prices in Belgium had risen by an average of 1.5 per cent, although there had been instances even of two per cent. In Belgium, leases had to be taken out at multiples of nine years - in this case, 27 years. At a calculated five per cent risk-free rate of return, translated into year-zero values, the cash outflow in 27 years would have amounted to €25.7 million, with a new outlay as from year 28. Any purchase of property for less than that amount was good value. Although ownership incurs maintenance costs, the calculated €4.5 million for this was comparable to the €4.37 million being demanded for the whole building's refurbishment.

To a question by Dr Mangion, Mr Falzon said there had been recent indications of a project management team being set up from government quarters, but nothing had materialised yet.

At the start of yesterday's sitting, Dr Mangion read a letter he had received from Peter Caruana Galizia, Mimcol legal adviser on the purchase of the Brussels building, in which he complained over how his comments to the committee on Tuesday were reported in The Malta Independent.