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Barroso sleaze – we spill the beans

Posted by Richard Sunday, April 24, 2005

When it emerged last week that two EU commissioners, Peter Mandelson and José Manuel Barroso, the commission's Portuguese president, had failed to declare hospitality they had received on the yachts of two billionaires, it was not then known that this information had come to light thanks initially to a tip-off from a senior commission official and then to leaks from officials very close to the commissioners. Mr Barroso's commission is leaking like a sieve.

It was, however, inevitable that British media attention would centre on Mr Mandelson, even though the Barroso story raised far more serious implications - an obsession that has continued into today's press with "Mandy" articles in both The Sunday Times and The Scotsman.

Despite the continued parochialism of the British media, however, it still remains beyond comprehension that, just before he took office, Barroso should spend six days on the luxury yacht of Spiros Latsis, one of the richest and most powerful businessman in Greece, and that this could be just an innocent meeting between old friends, as the commission tried to maintain.

In order to bring more facts to light, therefore, Booker and this Blog have been working together, unearthing the details that the rest of the media have chosen to ignore, the results of which are published today in The Sunday Telegraph Booker column, with an unedited, more detailed version in this posting.

Our starting point was the week before the details of Barroso's holiday leaked out. Then – by all accounts – there was a tense meeting of all 25 EU commissioners, under the chairmanship of Barroso, to discuss a "collegiate" response to a series of questions put to the commissioners in the name of Nigel Farage MEP, asking whether they had received any free hospitality.

Under unprecedented security, with all officials excluded, first Barroso and then Mandelson revealed to their colleagues that they had indeed benefited from free hospitality but, at the insistence of the president, all the commissioners agreed that Barroso's holiday and Mandelson's sojourn posed "no conflict of interest". They did not, therefore, have to be declared.

In agreeing that the details could be kept secret, it is possible that all the commissioners did not know the full details of the nature of the Latsis group of companies, comprising shipping, banking, petroleum, engineering and construction interests, and the fact that the group had considerable involvement in EU-funded schemes.

But what excited our interest most was the controversial project involving the design, construction and operation of Athens International Airport, at £1.6 billion the most expensive airport project in Europe. This was constructed by a German company Hochtief, with the aid of nearly £900 million-worth of funding from EU taxpayers and the EU's European Investment Bank (EIB).

It would only have taken a few hours on the internet, though, to have established that Hochtief and the Latsis group are partners in this enterprise and in a series of vast, part-EU funded construction projects in Greece. Yet, at the time the story broke, Françoise le Bail, the commission senior spokesman stated that she was "not aware that the group had benefited from EU funding".

Le Bail may have been speaking the truth, but the fact remains that she could have found out very easily that the Latsis group did (and continues) to benefit from EU funding, and none can be more controversial that the EU funding of the airport at Spata, near Athens, on which Booker reported as long ago as March 2004.

What makes the scheme especially controversial – and a potential minefield for Barroso – is that, for three years, up to the highest level, the EU commission has been refusing to answer a stream of questions from MEPs and journalists on how the contract to build and run the Spata airport was given to Hochtief.

From the start, there were suspicions about how the contract was awarded for, although the German company contributed only €133 million to the €2.28 billion project, it now has the right to manage the airport for 30 years, through a company of which, although it holds only a 45 percent stake (the remaining 55 percent held by the Greek government), Hochtief can nominate a majority of board members and appoint the chief executive.

Exhaustive investigation by Basil Coronakis, editor and owner of the Athens and Brussels-based journal New Europe, showed that the sub-contractors who carried out the actual construction work on the airport did not receive more than €320 million. This is way below the €2.28 billion (£1.6 billion) stated by Hochtief in April 2003 to be its total cost.

Among the questions raised by Coronakis since 2003, and which the commission has persistently failed to answer, are:

1. how, to qualify to administer a contract including over €2 billion of public money, did a private, profit-making company set up by Hochtief come to be designated by the Commission as an "authority" in 1996, apparently at the stroke of a pen, when EU rules make clear that an "authority", responsible for monitoring that the money has been spent correctly, must be state-owned or at least non-profit making? How could a recipient private company itself be that "authority"?

2. how did the EIB come to lend €997 million (£700 million) to the project, at a time when its total cost was still being shown as only €950 million, and when EIB rules allow loans of only 50 percent of a project's infrastructure cost?

3. why in costings accepted by the commission was a sum of €416 million (£290 million), shown as interest, added into the total twice?

4. what happened to the nearly €2 billion discrepancy between the estimated actual construction cost and the final costs claimed?
In March 2003 three MEPs, a German, a Dane and a British Conservative Bashir Kanbhai, asked the commission president Romano Prodi for an itemised cost analysis and sight of the invoices. In April Prodi replied that the European Court of Auditors was investigating the project.

Then, in July 2003 a senior commission official of the directorate-general in charge of the Cohesion Fund (DG-Regio) assured the MEPs that the project was now under investigation by three directorates, the commission's secretary-general and its legal services department. Nothing has subsequently been heard of any outcome to these investigations.

At the end of July 2004, according to a Greek version of the airport authority’s annual report, Prodi attempted to close the "Spata dossier", before handing over to the new commission under Barroso, by calling a top-level meeting of three directors-general. They proposed that the Greek government should pay a penalty of €12.7 million, under two technical headings, although Cohesion Fund rules say that such a penalty must be paid by the "authority", not by a government.

No more has been heard of this proposal. But when, last autumn, a new Greek government was set to investigate the Spata contract, the commission sent a list of every EU-funded Greek project other than Spata, with a hint that, if all these were investigated, the government might have to return to Brussels billions of euros. Nevertheless the contract is now under investigation by Greece's public prosecutor.

A further twist to the tale has been provided by Yannis Terezakis, a commission official working in DG-Tren, the directorate-general dealing with energy and transport. As someone who must travel between Athens and Brussels up to 45 times a year, often with his family, Mr Terezakis became angered by Spata's exorbitant airport charges, which cost him nearly £7000 a year.

In November 2003, writing from home and emphasising that he was doing so as a private citizen, not as an official, Mr Terezakis lodged a dossier on the airport saga with Olaf, the commission's anti-fraud unit. In particular he asked why there was no record of any VAT payments being made on the construction cost, which should have amounted to €270 million.

In April 2004 Mr Terezakis was summoned to Olaf's offices in his official capacity to answer questions. He refused, on the grounds that his was a private complaint and that, as an official, Olaf could order him to keep quiet.

After further exchanges with Dr Bruener, the head of Olaf, who accused him of being a "whistleblower", in September 2004 Mr Terezakis applied to the European Court of Justice for his right under EU law to see key documents on the airport project which the Commission was withholding. This month he was summoned by the commission's administration (DG-Admin) to attend a disciplinary tribunal. Again he has refused to attend, on the grounds that he is not conducting his case as a commission employee who can be silenced for breach of disciplinary rules.

All this shows how, under the Barroso commission, Spata is still a highly sensitive issue – which makes it relevant to question the wisdom or otherwise of Barroso's original refusal to declare as an interest his holiday last August with Spiros Latsis, whom Barroso explains is an old friend. They met 30 years ago as students in Geneva, when they imbibed the virtues of "European Federalism" from that revered guru of federalism, Denis de Rougemont (Latsis is a trustee of Friends of Europe, an EU-wide lobbying organisation for greater political integration).

The Latsis commercial empire has been closely involved with Hochtief in both constructing and managing Spata airport. Through Hellenic Petroleum, one of Greece's largest oil companies – in which another partner is the Russian oil giant LUKoil – it holds the contract for all fuel supplies to the airport, through an EU-funded pipeline built by a Latsis engineering company. Hellenic Petroleum, according to its own accounts, in 2000, paid $612 million to acquire a 34 percent interest in the Athens Airport Fuel Pipeline Company.

A Latsis company also has a 50 percent stake in the huge contract for running most of the airport's "ground-handling" services – almost everything except control of the aircraft themselves.

Latsis's development arm, Lamda, is a partner with Hochtief in a series of vast, part-EU funded motorway projects across Greece, as part of the "Trans European Network". And between 1999 and 2004, during the time when Spata airport was completed, the commission last week revealed that the giant EFG Eurobank Ergasias banking group, controlled by Latsis family interests, held an exclusive contract to handle all EU structural funds coming to Greece, totalling €28 billion.

All this evidence might have given Barroso pause to reflect when he was first asked last February in the name of Nigel Farage, leader of the UK Independence Party MEPs in Brussels, whether he had taken any holidays which might raise a possible conflict of interest. We may also question whether his fellow commissioners were fully briefed when this month they endorsed his decision that he had nothing to declare, on the grounds, as Françoise le Bail put it, that, as far as she knew, his host had no "business ties with the EU".

Clearly, there is much more to this whole affair than has yet been revealed by the commission and, on the basis of what we know and have published here, there are no grounds whatsoever by which Barroso could claim that his accepting lavish hospitality from Dr Latsis could not be construed as representing a "conflict of interest".

Yet, the ultimate irony is that, last Wednesday, just after the story broke, in a speech in Geneva, Barroso was reaffirming his belief that the EU should be more "transparent" in its dealings with the public. He was giving the speech as a guest of the Latsis Foundation.