This is junior calling

Even if he stands in the shadow of the Prime Minister cum Finance Minister, Parliamentary Secretary Tonio Fenech has found himself in the driving seat on a number of controversial issues. Here he talks about Mater Dei, the budget and Malta House

It’s going to take more than a prayer to the Mother of God to get answers from Government on the controversy surrounding the new hospital with the standard reply being “the negotiations are at a delicate stage.”
Parliamentary Secretary Tonio Fenech is no different. “We are at a very delicate stage and I do not wish to prejudice all possible alternatives for a resolution of the situation,” Fenech tells me when I ask him whether the negotiation process has ground to a complete standstill. He only just opens the lid on the controversy only to close it immediately.
“The Prime Minister has drawn the line on this case. As a Government we have made our final position very clear. What Skanska have proposed, although closer to our position, was not enough.
“On the other hand I cannot say that all contact has been severed even if government is steadfast in its position. The Prime Minister has been clear about what the alternatives might be and has said that the next step is to summon Skanska’s chairman to make government’s position clear even with the highest officials of the company.”
Although it seems that Government does have a final price tag in mind for the completion of the project, Fenech is cautious.
“Government is ready to pay only the sum which is due for the construction of the hospital and if it is delivered within a reasonable timeframe. On the date we are close to an agreement, but on expenditure there are issues that still need resolving.”
The Mater Dei project has followed a number of other hot potatoes that have slowly rolled into the huge holding tank that is the Office of the Prime Minister/Finance Ministry.
Fenech confirms that the negotiations with Skanska are under the remit of the finance ministry rather than within the health ministry’s portfolio.
“I got my instructions to handle the negotiations with Skanska from the Prime Minister after he received the gap analysis from the Foundation for Medical Services and decided that he wanted to intervene directly in the problem,” Fenech says.
The youngish PS confesses that up to the day of being appointed junior minister seven months ago, he never knew what the post meant. Fenech insists that it is a challenge he is ready to rise up to and does not shy away from shouldering responsibility when I ask him to justify his choice of PricewaterhouseCoopers – the company he used to work with – on the Mater Dei negotiating team.
“I am not employed with PricewaterhouseCoopers (PWHC) and had resigned my job there on the day I was appointed Parliamentary Secretary. I was not a partner in PWHC, I was just an employee. According to the code of ethics I have no conflict of interest if government contracts the services of PWHC. If it were so, PWHC would not be able to provide their services to any government. Alfred Sant used to work with them in the past and a Labour government did give PWHC work. George Vella’s son used to work there as well when the company was contracted to work for government.
“It is obvious why PWHC was chosen by various governments because it is one of the largest firms of auditors, accountants and consultants in Malta and employs some of the best people around. We cannot simply just throw them away because somebody sometime used to work with them.”
Fenech defends the choice of PWHC employee Michel Ganado and insists that it was a personal decision. “I wanted Michel Ganado because I knew that he was an expert in his field,” Fenech says.
“During the negotiations with Skanska I needed a project manager to manage the entire process. These were negotiations on a very tight schedule and it was important to get the right information within the right timeframe. I needed someone with experience. Michel Ganado whom I knew from my employment at PWHC, was the person most suited to perform this job.
“Ganado regularly goes abroad to train people in project management. The choice was not PricewaterhouseCoopers; I wanted Michel Ganado, who is not a partner at PricewaterhouseCoopers, because I knew of his expertise. “When faced with negotiations on a multi-million contract I wanted to have the best people possible on board. I informed the Prime Minister of my choice. The people coming from FMS were appointed by the Prime Minister but the other negotiating team members including Michel Ganado, Richard Camilleri and John Barr I chose.”
Fenech also defends the choice of lawyer Richard Camilleri.
“The negotiations delved into complex legal arguments and I needed an expert in this field. Everybody recognises that Dr Richard Camilleri is one of the best commercial lawyers on this island. It is good to point out that Richard Camilleri was on government’s side during the negotiations carried out with the MIDI consortium over the Tigne and Manoel Island project by the Labour administration of 1996. Even people in the Labour Party recognise his qualities.”
The discussion veers towards the budget for 2005, Gonzi’s first as Prime Minister and a crucial exercise to boot in view of Government’s commitments with the EU.
“Government is involved in intense discussions with the social partners at the MCESD. The forthcoming budget is an integral part of the social pact. If we want to arrive at a social pact it has to be an agreement decided upon before the budget, because it will be of no use to agree on a social pact after decisions are taken in the budget,” Fenech argues.
This leaves little more than a month for an agreement to be reached between the social partners and government.
Fenech says: “The intention is to announce the budget in November and that is the time frame the MCESD has for reaching an agreement on a social pact. Discussions are intense and frequent.”
He keeps his silence on what is being discussed at the MCESD but admits that Government’s main thrust for 2005 is to set out a national plan spanning a number of years.
I remark that this is a break from the Fenech Adami tradition that used to give the cold shoulder to long term national development plans.
“We are not talking of the traditional national development plans of the past, which outlined Government’s role in the economy. In today’s reality, the type and extent of government intervention in the economy is limited, unlike what used to happen in the past. Traditional national development plans used to talk of basic infrastructural services like telephone systems, electricity networks and so forth. The idea today is to have a more comprehensive plan that outlines a holistic strategy branching out in different directions such as education, employment and social exclusion.”
Fenech says that up to the third quarter of this year Government’s deficit projections were on target even if results show the country running at a shortfall of Lm109 million.
“The same quarter last year closed at Lm135 million and the decline is consistent with our projections and I am convinced that with some more effort we will reach our target of Lm95 million by year’s end. But Enemalta’s situation due to the oil crisis will not help.
“The extra burden of Lm5 million has to be financed in some way. There are other extraordinary situations that create stumbling blocks in our endeavour to reach the target and one such example this year was Malta House in Brussels. An additional Lm4 million was also spent on medicine. Government has to cater for these situations.”
Things will become more complicated next year when the deficit is projected to reach Lm74 million. Before touching on the oil crisis and Malta House, I ask Fenech whether government is considering cutting its public sector wage bill, which is the main expenditure item.
“I cannot comment on what is being discussed at the MCESD despite certain statements made by the General Workers’ Union. That the government has excess employees in certain categories of employment everybody knows. But today, public sector employment is not the 30,000 we used to speak of, it has been reduced to 28,000 and the reduction is not just due to natural wastage. The arrangement with the Environmental Landscapes Consortium where a number of government employees have been put under the management of the private sector has helped trim government’s expenditure by making that category of employees productive. The concept is not just one whereby government saves on wages. Nobody at the MCESD talked of redundancies. We always spoke of effective redeployment.”
The big ‘O’ crisis is expected to play a crucial part in determining how the budget is written and will probably constrain Gonzi & Co to write and re-write parts of the budget up to the very last minute.
“The oil crisis is worrying government a lot. The price hikes are fuelled by increased global demand, particularly by China coupled with crisis situations in major oil producing countries that are stunting production capacity. These factors are contributing to lower oil output on the market thus pushing up the price. Indications are that the upward climb has not yet stopped.
“Oil forms an integral part of our cost of production and the higher prices are having an impact on the country’s competitiveness. It also increases the cost of production for Enemalta in relation to energy generation. Our indications are that for this year Enemalta would have to absorb Lm5 million in additional expenses if it is to keep electricity prices as they are. The problem will only be made worse if prices continue to rise.”
To this effect the Investments Ministry is currently studying various options on how best to address the problem without increasing the financial burden. Fenech does not reveal details, but insists that people have to be aware that consumption is heavily subsidised.
“Wastage of electricity is a burden on the country. Even if we had to raise the price of utilities to match the cost of production, wastage is never justified. Unlimited consumption will have a negative impact on the country’s balance of payments. More money will leave the country further impoverishing the economy.”
Fenech does not mince his words when I ask him for the cut-off point that would spur government to consider raising water and electricity tariffs: “It has already been surpassed.”
He insists: “At this point we are seriously considering everything. The situation is what it is and government is considering all its options on how best to conserve energy while honouring its social and economic obligations. We cannot ignore the oil pressures on the manufacturing industry or the social reality, but we also cannot ignore the fact that the price of oil has doubled since last year. This is a burden shouldered by Enemalta and eventually by all taxpayers.”
Fresh from the conclusion of the inquiry on Malta House in the Public Accounts Committee, I ask Fenech whether he was expecting flack on the purchase of this embassy.
“The flack came our way because we did not explain ourselves enough. If we had issued the Mimcol report – which eventually was made public in the Public Accounts Committee - on the analysis that led to the final choice, every one would have come to the conclusion that the analysis was a good one.
“The PAC showed that government looked at all of its options meticulously and it also poured cold water on Labour’s criticism. The MLP had demanded all summer for an investigation by the Auditor General and the conclusion of the parliamentary enquiry was that there was no basis for an investigation.”
He continues to defend the decision to purchase. “When I look at the financial outlay on Malta House it is not something that we have nothing to show for. It is an investment. Government paid money, but it has also purchased an asset.”
I insist that it would be an investment if Government had the intention to sell in the future, something, which is not on the books. “Government has no intention of selling but just look at all the savings in expenditure on rent.”
How can he justify an expenditure of Lm9 million at a time of austerity? Why couldn’t government have gone for a cheaper property?
“The people who went to Brussels to study the market did not find a suitable building just outside the centre at a better price. We have to keep in mind that the value of property abroad does not necessarily always go up. It depends on the area and prices do fluctuate. The property we bought will always have a higher value because in front of us there is the Commission’s building which helps raise the value of the area. Bertu Mizzi was right it would have been madness had we not bought.”
But Mizzi interprets the issue purely from an entrepreneur’s point of view, I tell Fenech. The PS smiles and rebuts my argument.
“But why is it that we speak of the need for a cost-effective government, efficient, business-orientated and then when we apply the argument to Malta House it does not hold water?”
I insist with Fenech that the Government bought a building far larger than what was required to the extent that four floors were being considered for commercialisation even if the tax issue has not yet been resolved satisfactorily.
“If we don’t commercialise those floors we will still be earning money. The fact that I have bought and not rented the place will save me millions in rent over a span of time. Furthermore, if in the future we decide to increase the staff complement of our permanent representation, we would be able to accommodate them easily. When we bought with extra space we did so with a vision to give Malta the best possible representation in the EU.”
Fenech admits that Lm9 million “is a high figure and hits you in the face.”
“I have always defended the decision and it could have been better had we organised a press conference and handed out the documents with all the details. We would have won it at that point,” Fenech says confidently.
Will he give a guarantee that no more than Lm2.5 million will be spent on refurbishment works?
“Contractually we are bound with Lm2.1 million for refurbishment but we have included a buffer of Lm400,000. We will be monitoring expenditure and as in other capital projects we cannot allow expenditure to overshoot.”