Gaming Authority spent €4 million in 2014 to finish premises leased for 15 years

The Malta Gaming Authority spent more than €4 million to finish and furnish a Smart City property it leased for just 15 years, the Auditor General has revealed.

Nexia BT, the struck-off audit firm run by Brian Tonna and Karl Cini, acted as the external adviser when the MGA issued its expression of interest for the new premises and entered into the lease agreement.

The deal dates to 2014, a time when Chris Cardona was the responsible minister.

In its report, the National Audit Office described the MGA deal as “undermined by transparency and accountability issues” and as having "exceeded the high-end of market prices”.

In the report published on Tuesday, the National Audit Office after analysing three case studies, pointed to governance and administrative weaknesses in the way public entities rent private property.

The office recommended the setting up a single policy for public entities leasing private property.

“The Government, in consultation with the Department of Contracts, should establish binding public sector leasing guidelines. This framework should define uniform standards for needs assessments, market research, cost-benefit evaluations, and contractual clauses,” the NAO said.

It said it looked at leasing agreements involving the Agriculture Ministry, the MGA and the Malta Competition and Consumer Affairs Authority.

However, the NAO reserved its harshest criticism for the MGA agreement.

It reported that the MGA procurement deal came after Nexia BT, on behalf of the MGA, issued a call for an expression of interest for new premises in January 2014.

The MGA signed the agreement with Smart City in May 2014. A further agreement to expand the rented office space by a third, to 2,562 square metres, was signed in September 2015.

The agreement showed that the MGA was to pay €8 million for the 15-year contract but was also obliged to finish and furnish the space it was renting.

“Available records indicate that MGA financed approximately €4.3 million (excl. VAT) in capital works. This expenditure was additional to the lease payments and was not explicitly detailed in the original lease agreement.”

Not the cheapest bid

The NAO pointed out that the Smart City offer was not the cheapest bid submitted by those who expressed an interest in the contract.

The justification came from the criteria presented in the expression of interest procedure, under which 80 per cent of the score given to bidders was attributed to the technical specifications of the site, while the remaining 20 per cent covered financial aspects.

Under those criteria, Smart City received the highest total score despite its proposal costing €1.4 million more over five years than the lowest-priced bid.

“No documented cost-benefit analysis was presented to justify the financial trade-off. Due to documentation gaps relating to the marking scoring registered with respect to each bid’s technical and financial compliance, this Office was not in a position to evaluate the extent to which the award was justified,” the NAO report said.

The deal also covered the cost of 10 parking spaces, which the NAO said “were much higher than typical market rates”.

In 2026, the MGA was paying €1,681 for each parking space, while the market rate was €468.

“While the MGA secured a strategically located and well-equipped office hub, the governance and financial management of the leasing arrangement fell short of public sector standards,” the report said.

The NAO highlighted Nexia BT’s role in the deal, pointing out that an agreement between the advisory company and Malta’s betting regulator could not be found.

“Nexia BT managed the entire EoI process, including drafting, receiving, evaluating bids, and issuing the final report. While MGA confirmed that Nexia BT was engaged through a direct order, no documentation was provided by MGA to substantiate the engagement, and its terms including the expenses involved.”

Accountancy firm Nexia BT first hit the headlines in 2016 for setting up secretive offshore structures for former government officials Keith Schembri and Konrad Mizzi. Schembri and Tonna’s offshore dealings were laid bare by the Panama Papers data leak.

The companies set up by Tonna and Cini were allegedly intended to launder illicit proceeds from major national projects such as the Electrogas power station, in partnership with Yorgen Fenech and his Dubai company, 17 Black.

The NAO’s case study on the Agriculture Ministry looked at its lease of offices at Pinto Business Centre in Qormi.

The deal saw the ministry lease 800 square metres of office space and 25 parking spaces, costing the government €780,000 over three years. The NAO said the agreement provided an “acceptable level of value for money”.

However, the NAO criticised a lack of foresight in the lease agreement, which meant that an initial two-year deal had to be repeatedly extended.

The extensions were necessary because of delays in restoring the ministry’s planned premises in Għammieri, Luqa.

The report also looked at the Malta Competition and Consumer Affairs Authority’s lease agreement at Mizzi House in Mrieħel, which dates back to 2011.

The NAO said the agreement, which has been extended twice since it was originally signed, reflected market prices, although the office space per employee was “on the high side”