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.”
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).
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, 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.
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.
Dr Michael Briguglio
 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.”
 Paceville Master Plan: https://www.pa.org.mt/
Documents/ PacevilleIntegratedDevelopment Framework.pdf
 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.”