By Kurt Sansone

Copyright maltatoday

Key findings

• Taxpayers short-changed by €16m on 2019 Fortina deed to waive land conditions

• Fortina Group paid €8.1m for conditions to be waived

• Government had independent audit report putting valuation at maximum €23.9m

• Lands Authority chair, deceased judge Lino Farrugia Sacco, and OPM Chief of Staff Keith Schembri kept audit report hidden

• Minister, parliamentary secretary and parliament were misled when voting on Fortina deed

• NAO’s own valuation at 2019 prices puts price tag at €21m, still significantly higher than actual deal

• NAO recommends further investigations

NAO flags serious concerns in Fortina 2019 deal

Taxpayers were defrauded by almost €16 million when the government pushed through a parliamentary resolution to remove conditions on public land acquired by the Fortina Group.

The information comes from the National Audit Office’s latest investigation, which report was tabled in parliament on Monday. The probe, requested in 2021 by Arnold Cassola, delved into the 2019 contract between the government and the Fortina Group.

The contract was to amend past deeds by which the Fortina Group had acquired parcels of public land to expand its Fortina Hotel in Sliema. The historic deeds had included conditions that limited development to a hotel and imposed height limitations.

The 2019 deed was to waive those conditions, enabling the company to go ahead with a planned mixed-use, high rise €55 million development.

The NAO report reveals how the Lands Authority board led by deceased judge Lino Farrugia Sacco had relied on a misleading architects’ valuation exercise to recommend to the minister a price tag of €8.1 million for the removal of conditions on all parcels of land.

However, it transpires that this valuation was based on only one parcel of land, according to the misleading terms of reference given to the architects by former Lands Authority CEO Carlo Mifsud.

“The Lands Authority’s failure to establish terms of reference that adequately reflected what was sought by Fortina and what was eventually disposed of by the government set the process off in an inauspicious manner. This failure in governance on the part of the former CEO Lands Authority is a matter of grave concern to the NAO,” the Auditor General’s report states.

Hidden valuation report

But the NAO probe reveals gross shortcomings throughout the process, including Farrugia Sacco’s deceit to keep a second valuation report prepared by an independent audit firm hidden from the authority’s board members and then Lands Minister Ian Borg.

The audit firm’s valuation report was obtained by the NAO from the company since there was no record of it at the authority despite having been commissioned by the board of governors in March 2019.

The audit firm had estimated that the removal of all conditions, on all parcels of land in Fortina’s hands be made at a maximum consideration of €23.9 million—a whopping €16 million more than what Fortina ended up paying. The audit firm’s report was finalised in April 2019 but Farrugia Sacco kept it to himself and in June that year misled board members by telling them that the audit was still pending.

Keith Schembri: ‘I don’t remember’

The investigation also reveals that the former chief of staff at the Office of the Prime Minister, Keith Schembri, knew of the higher valuation and yet did nothing to safeguard the public interest.

Indeed, Farrugia Sacco had instructed the audit firm to invoice the Office of the Prime Minister for its services and the firm confirmed that it also had a meeting with Schembri.

Schembri told the NAO he had “no recollection of key developments” related to his involvement in the Fortina deal. He also denied authorising payments. Nonetheless, the NAO investigation uncovered evidence to the contrary.

Wide effort to conceal audit firm’s valuation

The NAO concluded that the redirection of the invoice by Farrugia Sacco to the OPM and the involvement of Schembri when authorising payment was part of “a wider effort to conceal the valuation by the audit firm”.

Furthermore, the NAO said Schembri’s claim that he had no memory of such a meeting was “questionable”.

The NAO investigation also reveals that the architects’ valuation prepared for the Lands Authority had been leaked to Fortina four days before the board of governors met to discuss a status report on the case on 8 February 2019.

“The NAO considered the disclosure to Fortina detrimental to the Lands Authority, as the valuation by the architects… was still under review by the board. This disclosure was irrational and counterproductive to the Lands Authority, given that what waivers were requested, and which had or had not been valued was still being determined by the authority,” the NAO report says.

Fortina’s counter proposal to a proposal it was never formally given was of €2.7 million.

The NAO says that the leak for which no reasonable explanation was put forward by either the Lands Authority or Fortina, raises “serious concerns regarding the transparency of the process and the integrity of those involved”.

Further investigations

The NAO also recommends further investigations into its findings by “pertinent authorities”, which can be interpreted as a request for the police and other law enforcement entities to carry out a criminal investigation.

The NAO report states: “The audit firm’s report and the NAO’s own independent verification brought to the fore the materiality of what ought to have been realised by the government through this transaction, as opposed to what was paid by Fortina. In view of this chain of events and the evidence at hand, the NAO recommends that the pertinent authorities whose action is warranted, actively consider the possibility to further investigate this matter to address concerns that extend beyond the remit of this Office.”

On 17 July 2019, parliament voted to rescind various conditions related to the Fortina sites. The vote was approved with 34 government MPs voting in favour and 27 Opposition MPs voting against. These contractual rescissions were formalised on 26 July 2019 when the government and Fortina entered into a new contract that amended the previous deeds.

Government reaction

In a reaction shortly after the NAO report was tabled in parliament, the government said it was taking note of the findings that focussed on the procedures adopted by the Lands Authority in 2019.
The government said it had already acted on the shortcomings noted by the NAO when in August 2024 it introduced a legal notice laying down “clear, consistent and objective” criteria for valuations in relation to rescission of contractual conditions related to public land.

“This legal notice also introduced a penalty amounting to 25% of the value of the conditions if those conditions would have been breached in the first place,” the statement reads.

The government said the procedure adopted in 2019 was the one outlined at law, requiring a valuation by three independent architects and was scrutinised by the board of governors.

“It was only after this procedure was completed that the contract between the government and Fortina was discussed and approved by parliament’s National Audit Office Accounts Committee and at plenary stage,” the government statement reads, omitting any reference to the wrongdoings flagged by the NAO throughout this process and how parliament was misled.

The government went on to defend the rescission of the land conditions as approved in 2019, saying it cleared the way for “an investment of quality”.

“The change in conditions obliged Fortina to pay government a compensation to the tune of €8.1 million. This is three times higher than the valuation made by the company,” the government said.

The statement made no reference to the much higher valuation of €23.9 million, which was kept hidden from the Lands Authority board members and the minister, with Keith Schembri’s complicity.

Cassola reaction

Arnold Cassola, Momentum chairperson said it was “scandalous” that then Prime Minister Joseph Muscat had got involved in the talks to speed up Fortina’s interests, insisting this was to the detriment of taxpayers.

He also called scandalous meetings convened by Keith Schembri on the matter when he had “no authority” to do so.

“Muscat and Schembri should be investigated for their non transparent manoeuvres to favour Fortina, whose owner is a major Labour Party donor,” Cassola said with reference to Michael Zammit Tabona.

Meanwhile, the Maltese branch of Fondazione Falcone said it will shortly, along with lawyer Jason Azzopardi, be filing a request with the police to investigate the public officials mentioned in the NAO report.

Quick history of the Fortina site

A summary of the public land transfers to Fortina and how past conditions limiting the type of development were waived

• The Maltese Government had sold several parcels of land to the Fortina Group through three deeds of transfer–12 June 1991, 25 January 1996 and 15 February 2000— against payment of €256,231, €249,243 and €931,749, respectively.

• The public land was sold on condition that it served as an extension of the Fortina Hotel complex, already owned by Fortel Services Ltd. The deeds imposed other conditions on the transferred land parcels, including height restrictions and public accessibility to certain areas.

• On 3 April 2017 and 6 December 2018, Fortina sought the waiver of certain conditions stipulated in the deeds. Valuations were undertaken by the Lands Authority to estimate the compensation due to the government for the removal of restrictions.

• On 17 July 2019, parliament resolved to rescind various conditions related to the sites. The vote was approved with 34 government MPs voting in favour and 27 Opposition MPs voting against. These rescissions were formalised on 26 July 2019 when the government and Fortina entered into a new contract that amended the previous deeds.

• The government consented to the rescission of waivers against the payment of €1,000,000 up front and €7.1 million over a maximum of 10 years from the date of the deed.

• The rescission allowed Fortina to develop parts of the site for residential, commercial and office use and with no height restrictions.