Steward demands €18 million in reimbursement, questions supervision of Vitals concession

Steward Healthcare, the US company running a 30-year concession for three state hospitals, has penned a pointed letter to Prime Minister Robert Abela, in which it questions the way the Maltese government supervised the PPP it had previously awarded to Vitals Global Healthcare.

Steward said it was facing an exposure of over €12 million due to problems connected to the Vitals concession on financing as well court proceedings. But it called on the government to honour well over €18 million in reimbursements in accordance with the concession agreement.

“While we agree that it is incumbent on Steward as the (relatively) newly appointed concessionaire to resolve these issues on the project… we simply cannot do this without the support of the government,” Steward Malta’s president Armin Ernst told Abela.

He said many of the legal claims and tendering issues Steward was dealing related to VGH’s business practices “in a period where the government was, or should have been closely involved in and overseeing the commission, including the financing and construction arrangements” – a reference to a monitoring committee appointed by the health ministry to oversee the VGH concession.

Ernst was clear that unless the government reimburses Steward for expenses it was incurring as part of the concession, it could not be expected to pay for the costs incurred under the Vitals concession.

Ernst, a former director at Vitals before leaving to join Steward a few months before the US company acquired the Maltese hospitals concession in December 2017, has now asked the Maltese government for “evidence of actual supervision” on VGH’s concession and on the appointment of Shapoorji Pallonji as contractor on the project.

Ernst wrote an additional letter to Abela, outlining the €18.6 million that Steward was expecting reimbursement for, and with candid language for the government. “Forgive me for being blunt, but arguably we are basically at this stage subsidising healthcare in Malta!” Ernst wrote as he signed off on the sums owing to Steward.

These include €8.8 million for budgetary increases to run the hospitals for 2017-9; €8 million in salaries and €3.95 million for clinical resources; just over €760,000 for beds at the Gozo and Karin Grech hospitals; and €887,000 for the lease on the St Luke’s orthotics and prosthetics unit.

“In November 2019 we believed we were close to signing an MoU,” Ernst said of the agreement hammered with Abela’s predecessor Joseph Muscat, who personally accompanied the Steward boss for a meeting with Abela to discuss the ramifications of the memorandum.

“Due to political issues in Malta and resultant continued lack of engagement this is also still not addressed… the time has now come to ensure proper payment of sums due is made and that there is clarity as to the future of this project.

“It is neither reasonable, nor fair, for us to invest such significant sums whilst ill-informed government sources criticise us unfairly in the media…”

Contract penalties

The American healthcare company, which stepped in to buy VGH in December 2017 when the unknown consortium of medical investors were unable to secure private finance, has requested wider berth on its concession since taking over issues concerning VGH’s former arrangements.

Chief among them are the penalties the Maltese taxpayer has to pay should the government default on the 30-year PPP.

In such a case, the government will fork out €100 million in cash and has to cover any lenders’ debt incurred by Steward.

Should Steward default on the contract and not fulfil its obligations on the St Luke’s, Karin Grech, and Gozo hospitals, it would ‘only’ lose its equity – any investment it carried out during the PPP – but government would still have to pay the debt they incurred.

But Steward wants to extend the grounds on which a ‘force majeure’ or national emergency default might incur, that is, situations where civil strife or war would make the operation unworkable. In such case, government would be obliged to pay out 50% of what Steward invested, and also pay any debt the company incurred.

The healthcare company also wants to add a host of other such ‘force majeure’ conditions, controversially including: accidental loss or damage, strikes and work-to-rule situations, and even changes in laws such as those affected by EU regulations all situations that tend to affect the ordinary running of any business.