1.On the 22 and 23 March, the 21 April, the 5 and 12 May 2010, the Public Accounts Committee (PAC) held extensive meetings to analyze the report “Malta Shipyards – Investigation into the financial loss on the FHT Projects: 14 September 2009” prepared by Price Waterhouse Coopers (PWC) at the request of the Malta Shipyards Board.

2.The PWC report deals with the conversion contract that Malta Shipyards Limited had concluded on 9 March 2006 with Fairmount (later Fairstar) Heavy Transport (FHT) to convert two barges bought in Norway, the Fjord and the Fjell, into self propelled, semi-submersible vessels.

3.Initially the assignment given to Price Waterhouse Coopers, dated 10 April 2008, was for an examination of the engineering and procurement subcontract for Fjord, related to the conversion works that was given to MSC (Europe) Limited. Subsequently, on instructions from the government, the assignment was extended to cover operations carried out, and the financial loss incurred, with respect to conversion of the Fjord as a whole (19 May 2008) and the Fjell (6 October 2008).

4.During the PAC meetings, PWC representatives gave detailed, comprehensive replies to questions that were asked of them by PAC members regarding their investigations.

5.The picture that emerged of the work carried out on the Fjord/Fjell contracts was most disturbing. Evidence of multiple gross mismanagement or worse, came to light, both in the process by which the contracts were negotiated and in the way by which they were implemented, including the surmise that top management may have misled the Board.

6.During the hearings, it also emerged that the Board of Malta Shipyards had commissioned another report on the Fjord/Fjell contracts (from Eng. Cardona) about which no information is available at this stage; and that within FHT, shareholders representing interests which bought into the company at about the time when the Fjord/Fjell contracts were being signed with Malta Shipyards, are pursuing an action in Dutch courts, against the original shareholders. Chief among the latter features the person who signed the Fjord/Fjell contract with Malta Shipyards, and he is being cited for damages on grounds of negligence and gross mismanagement totalling over €43.6 mn, to cover the period during which the Fjord contract was being implemented at Malta Shipyards. No assessment has yet been made of how this could affect the Malta Shipyards position or that of their shareholders.

7.The PWC investigation followed terms of rerference set for it to establish how the Fjord/Fjell contracts were carried out. These did not concern the “why” of what happened. Even so, within the terms of reference set, PWC encountered very serious gaps of information needed for their task. In response to a request made to them during PAC hearings, they submitted a summary of the extensive and key information gaps they came across in the process of carrying out their assignment.

8.In addition, the PWC investigation by its very nature, could not, indeed did not pursue, vital points relevant to the Fjord/Fjell projects, chief of which:

a)information available from all responsible actors and stakeholders in the process, such as the General Workers Union, former and other board members of Malta Shipyards still in function, the former legal adviser of of the company, and some other employees and ex-employees;

b)the internal cash flow position of the company, as resulting from transfusions coming from the government budget for “working capital” purposes, related to the Fjord/Fjell contracts;

c)internal governance and management structures within the shipyards covering how the Fjord/Fjell contracts were approved and concluded;

d)government oversight structures at supervisory and finance ministry levels. Proceedings during the PAC hearings indicated these might have been flimsy to non-existent;

e)during the PAC hearings, data was tabled about the losses incurred by shipyard activities over the last forty years. How the Fjord/Fjell contracts contributed to losses in the final three years of the shipyard’s operations from an operational perspective has not been clarified and needs to be.

9.Moreover, as already said, no assessment has been made of the implications of the current litigation between FHT shareholders, from the perspective of the rights of the shareholders of Malta Shipyards.

10.In the circumstances, it is appropriate for PAC to request that the Auditor General conduct a further investigation into the Fjord/Fjell projects, covering all aspects referred to above, as well as other aspects his office might think relevant which while

i)taking into account the perspectives and data that could be supplied by all stakeholders and participants in the Fjord/Fjell contracts;

ii)building on the report provided by PWC;

iii)reviewing and assessing the wider perspective of how supervisory authorities (at ministry and other levels) operated or should have;

iv)making all the inquiries it deems fit in Malta and abroad, such as the Netherlands:

submit at the earliest possible opportunity, a report providing an evaluation and guidance to PAC on the Fjord/Fjell projects

–(a)regarding areas which the PWC report could not cover because they were outside its remit or because of gaps of information;

–(b)regarding personal, administrative and political accountability for the Fjord/Fjell contracts;

–(c)regarding how supervisory functions at Ministry level were carried out, including if/where relevant, recommendations regarding improvement of future supervisory practice on projects being managed by non-departmental public or publicly owned agencies;

–(d)regarding the available openings if any, for the Malta government to seek redress and compensation as shareholder of Malta Shipyards for losses it has carried as a result of contractual and managerial shortcomings that could have resulted from actions by which Malta Shipyards were committed to the Fjord/Fjell projects, due to possible improper influences over its management.

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