EEAS Documents: Vlahutin’s €2M Villa, Dubious Procurement Procedures

By Vincent W.J. van Gerven Oei,
EEAS Documents: Vlahutin’s €2M Villa, Dubious Procurement Procedures
One of the villas in Rolling Hills.

In response to a freedom of information request, the European External Action Service (EEAS) has provided Exit with a number of previously unpublished documents regarding the acquisition process of the official residence of the Head of the EU Delegation in Tirana, Rolling Hills villa 34. Exit had asked the EEAS to provide all documents relevant to the acquisition.

Previously, EU Ambassador Romana Vlahutin had called the investigation of Exit and other media into the acquisition of her residence as “fake news,” insinuating links with “criminal interest groups.”  However, the more generous disclosure of the EEAS documents shows that there is certainly more to investigate.

Documents provided by the EEAS give a clear overview of the timeline of the procurement process, as well as the communication between the EEAS and the European Parliament, and they bring to light an important question related to procurement practices of the EU Delegation in Tirana.

Procurement procedure

EEAS document Ares(2015)1409221 of March 31, 2015 describes the beginning of the procurement procedure:

The real estate market in Tirana includes a large number of illegal constructions and the price of housing varies a lot according to their localization, notably the distance to the centre. Recently a number of secured compounds have been constructed in the outskirts of Tirana. Several diplomatic missions moved their residence there. The delegation thus concentrated its searches on this type of properties because they were better meeting our criteria.

In other words, the EU Delegation in Tirana already aimed at private compounds, such as Rolling Hills, before contacting real estate agencies, thus narrowing the scope of the search well ahead in advance.

Subsequently, “the delegation contacted 9 real estate agencies. 16 offers were received. The delegation retained five of them for a more thorough examination.” It is unclear on which basis this pre-selection was made. No indications are given in any of the documents provided by the EEAS about this procedure. As we will see below, this pre-selection is also the most susceptible to “maladministration.”

Pre-selection

What is even more remarkable, is that upon further analysis of the 5 pre-selected properties, it resulted that 2 were not for sale, one was not yet completed, and another had the incredible price of €2.2 million. So, either the 16 offers were of a terrible quality, or the pre-selection procedure failed to select any viable options. Or, perhaps, the final 5 offers were selected so that one of them was bound to win.

Fig. 1. Facsimile of Ares(2015)1409221, 31/03/2015.
Fig. 1. Facsimile of Ares(2015)1409221, 31/03/2015.

In other words, the pre-selection included properties of which the EU Delegation knew in advance that they would be disqualified by the independent expert flown in from Brussels. And if you are looking for a house to buy, why would you even look renting property? How is it possible that you request an offer from a real estate agent, and that this offer fails to mention whether the property is for sale. This seems a rather incredible circumstance.

Screenshot from 2017-03-20 10-22-23
Fig. 2. Facsimile of the independent expert report Ares(2015)4711823, 05/02/2015.

Negotiation before the expert report

The second dubious point is that the description of the public procurement procedure states that the “initial asking price” of Rolling Hills villa 34 was €1,750,000. However, the expert report, evaluating the five properties before negotiations could start, shows a price of €1,649,000. In other words, the price negotiation between the EU Delegation in Tirana and the owner of the property must have taken place before the filing of the expert report, which recommended the acquisition of the Rolling Hills villa 34.

A recent response of the EEAS to the Budget Control Committee of European Parliament (which curiously mentions 15 initial offers rather than 16) also claims that “the initial price for the proposed residence was €1,750,000 which, following negotiations, was lowered to €1,649,000.” But is it common practice for such negotiations to take place before the external EEAS expert signs off on it?

This procedure rather gives the impression that the EU Delegation assumed that the Rolling Hills villa was a done deal, and started negotiations before the choice was approved, thereby giving one of the offerers advantage over the others in the procurement process.

Security requirements

In its response to the EP’s Budget Control Committee, the EEAS argues that option 2, at the cost of €1,054,896 + outfitting costs did not fulfill the security requirements:

Another more or less equivalent, but cheaper, villa in the same neighborhood was not acceptable mainly for security reasons: in order to comply with the EEAS security requirements, the cheaper villa would have had to be equipped with armoured windows, and the height of the surrounding wall would have had to be increased from 1.8 m to 2.5 m but this was not authorised. Furthermore, the villa was also on a slope which represented danger in case of an earthquake.

This seems to imply that Rolling Hills villa 34 was already surrounded by a 2.5 m high wall, is not on a slope, and did have armoured windows already installed. Or, perhaps, these are still to be installed as part of the “security works” at a cost of €101,000. Its also worth noting that the lower negotiated price of the property + the cost of the security works brought the price back to the initial asking rate of €1,750,000.

Fig. 3. Facsimile of Ares(2015)1409221, 31/03/2015.
Fig. 3. Facsimile of Ares(2015)1409221, 31/03/2015.

If indeed Rolling Hills villas, which are all constructed with the standards and quality, are of “high” construction quality, as the EEAS claims, the earthquake argument seems ridiculous.

This leaves us with the “decisive” argument that the much cheaper villa was not purchased because raising of the the walls from 1.8 m to 2.5 m was not authorised. It seems to me that with a price difference of €700,000, there might be ample negotiation room to raise that wall.

Perfect match

Thus, the match between Rolling Hills villa 34 and the EU Delegation’s procurement specifications is truly remarkable. Not only did the surrounding walls have exactly the required size, but also the interior of this property, described as “newly built,” perfectly matches the requirements of the EEAS:

Functionality: the reception area provides sufficient space for official reception for at least 50 guests; the large ground-level reception areas offer the opportunity of very considerable cost savings as a venue for representation events compared with the hotels and restaurants the EUD currently uses; the dining room seats at least 14 people; the kitchen area is suitable for size and function of the residence; there are easily accessible parking places for vehicles at the entrance, and a guest room. The layout offers a clear separation between the official and private areas, a characteristic which is rare in the Albanian market.

If indeed it is a “rare characteristic” in the Albanian market to have clearly separated official and private areas, how come a brand new house was already featuring such a separation? Who else would buy such a property?

Together with the suitable security aspects of the property, it really seems as if Rolling Hills villa 34 was built specifically with the requirements of the EU Delegation in Tirana in mind, and by including a ridiculously priced villa of 440 square meters (the smallest of the 5 preselected) at €2.2 million (the highest of the 5), a price of €1,649,000 (€1,750,000 including security works) suddenly seems quite reasonable.

Without further insight into how the pre-selection was made by the EU Delegation in Tirana, there thus remains a strong doubt that Rolling Hills villa 34 was at a considerable advantage even before the public procurement procedure started.

It is clear from the documents that price negotiations also began before the independent expert’s report was drafted, and several aspects of the building, such as high walls and a “clear separation between the official and private areas” in a “newly built” property could suggest that information between the EU Delegation and the owner was exchanged, while the procurement procedure was still in process.

Who paid the taxes?

A final dubious point is that all the taxes on the transaction, €128,500, have been paid by the EU Delegation (fig. 3). The question is how the EU Delegation arrived at this sum.

The notary fees are 0.23% of the value of the contract, which would amount to €3,792.70. It would be reasonable for the EEAS to pay for this.

The real estate registration fees are calculated by square meter and are to be paid by the owner of the property in order to register it in the land register. If the land is rural, the price is 100 lekë/sq.m., if it is registered as urban, it is 1,000 lekë/sq.m. Let us assume the latter, meaning that the registration costs would be 585,000 lekë (~€4,325,10). It would be curious if the EEAS covered these costs, because the house can only be sold if it is already registered. But let us assume for the moment that for whatever reason they did.

This leaves us with about €120,000 remaining “other costs.” Judging from the size of this amount, it may very well be that this amount includes the income tax over the profit made the owner from reselling the property. Let us assume that the property had a value of €1,500/sq.m., which would be an average sales price in Rolling Hills. This would bring the original value of the villa to 877,500. This means that the profit on the villa from the resale was €771,500, over which a 10% income tax of €77,150 had to be paid. This value fits squarely into the “other costs” paid by the EEAS, leaving a bit over €40,000 for other “other costs.”

Beside the notary fee, real estate registration fee, and income tax over the resale profit, there seem to be no other taxes or fees that could have been involved with the acquisition of Rolling Hills villa 34. The question then becomes: why would the EU tax payer pay the taxes over the profits on a real-estate resale made by an Albanian private citizen? This would be like going to company, buying a product, and then paying the company’s VAT bill to the state – paying taxes twice! But this is precisely what the EEAS seems to have done, unless there would be “other costs” that would justify the amount of €128,500.

This would not be the first time that the EU Delegation in Tirana engages in such forms of maladministration. As Exit has shown before, the EU Delegation in Tirana has a history of maladministration in procurement procedures and only an internal investigation of the EU Ombudsman or OLAF can bring this to light.

Update: Analysis of the taxes was added.



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Albi
1 month 2 days ago

Incredible job. Well done!

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