Making the best of a (very) bad deal

According to a Cabinet memo revealed by MaltaToday last weekend, the Maltese government is planning to ‘take back’ the three hospitals it had controversially granted, in 2015, to the unknown Vitals Global Healthcare.

From the outset, this transaction has been mired in opacity and suspicion. A damning National Audit Office report found that government had signed a Memorandum of Understanding with several investors - who eventually formed VGH - months before an international request for proposals was even issued. This raised suspicions that the Private-Public Partnership, crafted from within the OPM, it was all along intended to go the way of the unknown consortium.

In any case, that contract was officially a failure: since Vitals failed to obtain the necessary bank financing it required to kick-start its project – whilst also racking up millions in debt, with nothing to show for it - and sold the concession to US giant Steward Healthcare Group, only 21 months after signing the contract.

In the process, Steward handsomely paid the people behind the Vitals project, spent millions to buy out the former investors, and are still facing a London court action from one of the original investors.

Moreover, government ended up paying VGH around €70 million per year for a service - providing hospital beds to the State – that was never delivered. And as Muscat himself revealed in court, taxpayers are currently paying €64,000 a day to Steward: with the figure rising to €250,000 once all upgrades and refurbishments cited in the concession are met.

Further adding to the government’s problems is a decision by Konrad Mizzi – who remained entrusted to run this PPP by Joseph Muscat – to include a side-letter to a BOV loan agreement that puts the government in default if the hospitals contact is annulled by a court of law.

Already the concession obliged the Maltese taxpayer to pay hefty penalties should the government default on the concession: €100 million in cash and any lenders’ debt incurred by Steward.

But should Steward default on the contract, it would ‘only’ lose its equity – the investment it carried out during the PPP – while government would still have to pay the debt they incurred.

By any standard, this can only be described as a rotten deal for the Maltese taxpayer.  It is doubtless for this reason that the Maltese government is now reportedly brokering a face-saving deal with Steward Healthcare: to reclaim the privatised hospitals, whilst also paying Steward to maintain the buildings, develop the hospital facilities, manage the IT system for the hospitals, and procure the medical equipment.

On the plus side, the hospitals themselves will return to the National Health Service, with all staff employed by the Maltese government, and once again be run as State hospitals. But the deal has yet to enter the difficult phase of negotiating the multi-million fee that the Maltese government will have to pay, to avoid the onerous penalties it would owe to Steward, should this contract not be taken forward.

Given how much this deal has already cost the taxpayer, this becomes a major consideration. So the actual changes to this contract will be extremely important to watch out for.

At present, it looks like the Abela administration is attempting to achieve a suitable ‘way out’ for both parties: whereby the Maltese government will take back responsibility for the hospitals; but it will placate Steward by according it a design-and-build contact: i.e., paying it to build on the hospitals and provide the medical equipment and IT, as well as retain management of the facilities.

Is this a better deal for the Maltese State? Certainly, it sounds less mysterious than the original intention of the first Vitals PPP, whose creation was shrouded in an obscene lack of transparency, with offshore companies owning the main company running the hospitals.

In this scenario, the State gets to retain security of the land it gave away by revoking the emphytheutical agreements, and will once again be in a position to run the service in the interest of the public; but at the cost of a multi-million lump sum that justifies Steward’s retention of a financial interest in Malta.

It remains, however, a case of making the best out of a (very) bad deal. As such, it is important not to repeat the mistakes of the past.

Whatever the outcome, the government must provide absolute transparency on this contract. Now that the damage has been done by the previous administration, the present administration must make sure it wins back public trust: before committing even more taxpayers’ money to its next moves.