National and EU authorities are looking into the potential illegal state aid surrounding the deal reached between the government and Corinthia Group over the former Ħal-Ferħ complex at Għajn Tuffieħa.

Legal sources told The Shift that several potential infringements of stringent EU state aid rules have been identified, including unfair competition, below-market prices and advantageous payment terms, as well as lack of clarity in the original tender, all of which gave an advantage to the private hotel group.

The deal, a result of negotiations between the public-listed hotels’ group and the government, includes changes in a tourism-related concession so that part of the former public land granted to the group for tourism purposes will now be transformed into 25 luxury residential villas.

In compensation for this significant change of use, which will see Corinthia selling its villas for millions, the government accepted to receive just €10.3 million, with payment terms staggered over 10 years.

Moreover, during negotiations held under the political wing of Economy Minister Silvio Schembri, Corinthia was allowed to pay only €1.3 million upon the signing of this lucrative concession, with the rest (€9 million) to be paid individually by the buyers of the luxury villas, in instalments, each time the group manages to sell one of its planned properties.

Does this deal result in unfair competition?

Legal sources told The Shift that although an investigation over such a deal is complicated and may take time, as details are still to be determined, the Corinthia Ħal-Ferħ deal has all the potential to be classified as state aid.

If this turns out to be the case, the EU may order the deal to be struck down or to make the government ask Corinthia to fork out much more in compensation to state coffers.

According to state aid experts, in the case of the Ħal-Ferħ deal, a major and significant component of the original public bid was changed hastily in November 2020 as the Planning Authority changed the local plan to allow Corinthia to transform public land into a luxury villa development.

According to the original local plan, no residencies could be developed at Ħal-Ferħ. However, following negotiations, the government decided to accommodate the hotel group and change the rules of the game.

The experts told The Shift that this change in rules allowed Corinthia to gain a substantial and decisive advantage, which had it been known at the original tender stage, may have attracted other bidders to submit an offer and compete with the group controlled by Alfred Pisani.

“In the case of the Ħal-Ferħ deal, an area earmarked for just tourism development was turned into prime real estate development after the tender was awarded and the contract signed. This gave an unfair advantage to the Corinthia group which is not permitted under EU state aid rules,” experts told The Shift.

“Moreover, given that the price at which the change in scope of the land use is significantly below market rates is another reason for the deal to qualify as state aid,” they insisted.

Through this deal, Corinthia was given the ‘right’ to build their villas over some 30,000 square metres, with a built gross floor area of 9,000 square metres.

The proposed development includes residential villas at Ħal-Ferħ

According to a valuation exercise carried by three government-appointed architects – Dennis Camilleri, Matthew Mercieca and Mario Cassar – the price to be paid by Corinthia for the change of use is €10.3 million, with the government agreeing to charge just €1.3 million upon signing.

While Corinthia will be paying just €1.3 million for 25 tumoli of developable land, a tumolo in Santa Maria Estate currently fetches between €800,000 to €1 million.

Government silent, Corinthia disagrees

So far, the government has remained tight-lipped over the deal and is refusing to confirm that a state aid probe is in the offing.

Asked to state whether Minister Silvio Schembri has referred the deal for the approval of the State Aid Monitoring Board, presided by Permanent Secretary Paul Zahra, his spokesperson, Dinah Seguna refused to reply.

At the same time, Corinthia said the facts of the case are in the public domain but did not comment on possible state aid breaches.

“Perpetual title to the Ħal-Ferħ site was sold by the government in 2009 and a contract was signed to that effect. The contract established precise volumes and heights for development, and whilst then setting use for tourism, included a provision to demand a supplemental payment to the government should part of the volumes be re-assigned to the residential use,” a spokesman for Corinthia told The Shift.

“The price established in recent weeks is thus an incremental value, and not the value of the land or volumes permitted and paid for in the 2009 contract. This is all documented in public deeds,” the spokesman insisted.

The two apartment blocks Corinthia proposed at St George’s Bay in 2019

In 2019, Corinthia had also attempted to use the same tactic to acquire former public land assigned for tourism to build apartments in St George’s Bay. The project was ‘stopped’ as a group of developers had threatened the government with initiating a state aid probe.

The St George’s project is now classified by Corinthia as being “on hold”.

Asked whether the group will be reigniting its apartment plans for St George’s Bay the spokesman said: “We have no plans other than to continually upgrade and operate our three hotels in the area.”