Konrad Mizzi waived €9 million guarantee on hospitals concession

The Maltese government was never provided with a €9 million ‘performance guarantee’ from Steward Healthcare, the US company that acquired a 30-year concession to run three state hospitals, because the Cabinet approved a waiver of this obligation.

MaltaToday has learnt that after Vitals Global Healthcare had failed to provide a €9 million bank guarantee within a month of signing its deal for the hospitals, the Maltese government later waived the obligation for Steward.

In fact, it was tourism minister Konrad Mizzi, responsible for the government’s privatisation arm Projects Malta, who in February 2018 accepted a declaration by Steward Malta that its parent company – described as “a group whose annual revenue is approximately $8 billion” – would be able to finance the obligations of its concession.

Instead of demanding both VGH and later Steward for the signed bank guarantee, the Maltese government allowed both companies to make do without the guarantee.

Shortly after acquiring the concession from VGH, Steward’s president Armin Ernst wrote to Konrad Mizzi in February 2018, requesting that the Maltese government accept new terms in which Steward – now ostensibly backed by its American parent – would not need to provide a performance guarantee.

“We further understand that the Government confirms [that] receipt of the letter issued by Steward [attached] satisfies the concessionaires’ obligations to finance the concession under the concession agreements and the financing extension letter,” Ernst wrote to Mizzi, who duly signed the terms.

In the extension letter, Steward says “it would be able to finance its own obligations, and those of the concessionaire companies under the concession agreements, through Steward Group’s resources and relationships.”

The letter was deemed to be a suitable alternative for the Maltese government, instead of making Steward honour its obligations to provide a €9 million performance guarantee.

Former prime minister Joseph Muscat (right) has accompanied Steward president Armin Ernst (second from right) to meet new Prime Minister Robert Abela, in which he informed him of Steward’s wish to renegotiate terms in the hospitals’ concession which had been hammered out with Muscat during 2019

Vitals had no track record in the health industry when in mid-2017 it encountered difficulties finding banking institutions to finance its operations and commitments. The performance guarantee would have been called up by the Maltese state, if the hospitals’ concessionaire failed to meet its commitments.

Yet as audited accounts posted last week by Steward show, in 2016 Vitals was already facing a warning that its inability to secure financing for its concession was proving to be a “material weakness [that] may cast a significant doubt on [its] ability to continue as a going concern.”

That year VGH posted a net loss of €6 million, with total liabilities exceeding assets by €8.9 million. Since then debts are believed to have climbed to over €30 million, but accounts for VGH’s 2017 financial year – the year in which it sold its concession to Steward – have not yet been filed.

According to the concession agreement, Vitals was bound to put in place “an unconditional and irrevocable on demand prime bank guarantee issued by a bank duly licensed to carry out banking activities in Malta or an EU Member State and acceptable to the government of Malta”.

Yet Konrad Mizzi had claimed in January 2018, that Vitals had obtained a guarantee from an international bank, the name of which he could not recall. It remained unclear whether Vitals actually honoured their commitment, with the health ministry failing to provide proof of Vitals’ guarantee.