Steward waiver on €9 million bank guarantee reversed

The Cabinet of ministers has voted not to extend a waiver for a €9 million bank guarantee that was granted to Steward Health Care, the company running a 30-year concession for three state hospitals.

MaltaToday has learnt that the same decision taken in 2018 shortly after Steward acquired the concession from the mysterious Vitals investors consortium, granting it a breather on providing the guarantee, has now been ‘reversed’.

The Maltese government was never provided with the €9 million ‘performance guarantee’ from Steward, after tourism minister Konrad Mizzi accepted a declaration from Steward that its American 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 Vitals Global Healthcare and later Steward for the signed bank guarantee, the Maltese government had allowed both companies to make do without the guarantee.

Mizzi had signed the new terms in February 2018, as a suitable alternative for the performance guarantee.

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.

But in 2015 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.

Steward says government must pay €18m

Earlier this week, MaltaToday revealed pointed correspondence from Steward’s president Armin Ernst to Prime Minister Robert Abela, showing how Steward is owed €18 million in government dues for running the three hospitals.

Ernst said Steward was facing an exposure of over €12 million due to problems connected to the Vitals concession on financing problems as well court proceedings from former investors. 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,” Ernst told Abela.

Armin Ernst: Government has yet to reimburse Steward €18 million for salaries and other expenses to run the concession

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.

The committee is headed by Dr Joseph Zarb Adami, and was appointed to make sure the level of healthcare received from the three hospitals Steward run remains up to standard.

But the health ministry claims that whenever issues with healthcare were identified, they were immediately addressed and resolved. It made no mention of Vitals’s problems in meeting its milestones when it was granted the concession in 2015.

Ernst was clear with Abela 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.”