Steward hospitals deal: In the Auditor General’s words

The National Audit Office on Monday published its third damning report on the hospitals concession deal that cost public coffers €456 million until 2021.

The latest report was tabled in parliament on Monday afternoon. It covers the transfer of the hospitals concession to Steward Healthcare in 2018 and the American company’s subsequent management of the contract.

The strongly worded report, among other findings, showed former minister Konrad Mizzi had granted VGH authorisation to transfer the hospitals concession to Steward Healthcare before seeking Cabinet’s endorsement.

It also shows how Joseph Muscat’s Cabinet was not kept abreast of developments.

EXCERPTS OF THE DAMNING REPORT

1. An ill-defined concession

“The negotiations undertaken were intended to rectify a concession that was ill-defined in the tendering process, to mitigate the effect of selection of the VGH – a Concessionaire with no experience or resources to undertake such a commitment, and address the myriad contractual anomalies and deficiencies that resulted in the disproportionate allocation of risk being borne by the government and the setting of certain obligations on the Concessionaire that were not realisable or feasible.” (Page 26, 2.2)

2. Konrad Mizzi’s failure to cooperate

“It is with the gravest concern that the NAO views the failure of the Minister for Tourism [Konrad Mizzi] to cooperate in this audit as inexcusable, compounded no less by the centrality of his role in the concession. The shirking of accountability on the part of the Minister for Tourism hampered this Office in its understanding of the initial developments that led to the concession being taken over by the SHC [Steward] and impacted other aspects for which he assumed responsibility in relation thereto, most notably in authorising the change of control and in representing government as guarantor for funds secured by the SHC.” (Page 29, 3.9)

3. Failure to understand how Steward assumed control of obscure concession

“The NAO fails to reconcile how a reputable firm such as the SHC would be willing to assume control over a concession that was fraught with controversy, acquire a company whose track record was abysmal, whose finances were undisclosed and unknown and that was led by an individual who elicited mistrust, and how despite all these facts being known to the SHC at the time of its interest in taking over the concession, proceeded regardless.” (Pages 30-31, 3.15)

4. Steward’s mistrust of Vitals director

“Ample evidence of the SHC’s mistrust of the Director VGH, its awareness of the shambolic state that the VGH was in, its cognisance that more time would ordinarily be required to conclude such a transaction and that the transaction was to be seen in the context of a seller who could not warrant his business, emerged. The SHC attempted to mitigate these risks through assurances and waivers sought from the government, such as the temporary and conditional release of the performance bond, the introduction of a standstill period, the deferral of payment of taxes and the capping of liabilities.” (Page 34, 3.32)

5. Keith Schembri seeks Steward’s go-ahead to inform Chris Fearne

“Despite all these red flags, the SHC ploughed on regardless, driven recklessly forward by a government that – for some reason unknown to the NAO – was bent on the hasty resolution of this transaction. The disjointedness of government emerges most clearly in the correspondence submitted by the CEO SHC International to the Chief of Staff OPM, wherein the former sought the clearance of the latter on whether to disclose any information regarding progress on discussions to the Minister for Health. Aside from the absurdity of this correspondence, the guarded approach to the disclosure of information to the Minister for Health confirms that stated to the NAO by the Minister in terms of his non-involvement in the transfer of the concession and contradicts that stated by the Prime Minister.” (Page 34, 3.32)

6. Key government officials impeded NAO from understanding full picture

“The failure of key officials of government, namely the then Chief of Staff OPM [Keith Schembri] and the Minister for Tourism [Konrad Mizzi] to provide any information impeded this Office from forming a comprehensive understanding of developments and heightens concern that government’s interests were not served. In the NAO’s opinion, the irrationality driving the government and the SHC in concluding this transaction lacked coherence and resultantly cast doubt on the conduct of the government officials involved.” (Page 35, 3.34)

7. Government bank guarantee for Steward overdraft hidden from Cabinet

“While the Minister for Tourism sought Cabinet’s approval in relation to the exemption requested by the SHC in relation to the performance guarantee, the same cannot be said with respect to the Direct Agreement, through which the Government effectively guaranteed an overdraft facility that the Concessionaire sought to secure.” (Page 39, 4.6)

8. Chris Fearne sidelined by Muscat and Mizzi

“The Minister for Health [Chris Fearne] informed this Office that... he was informed that the Minister of Tourism was negotiating with Steward, which negotiations were to result in additional payments by the government to the concessionaire without any increase in services. This was deemed unacceptable to the Minister for Health, who raised objections with the Prime Minister [Joseph Muscat]. According to the Minister for Health, the Prime Minister assigned responsibility for negotiations to him; however, the Minister for Health indicated that, despite this commitment, negotiations continued between the Minister of Tourism and Steward without his involvement.” (Page 42, 4.22)

9. Mizzi failed to tell Cabinet of higher risk borne by government in €100m agreement

“In submissions to this Office, the Minister for Health [Fearne] recalled that the Minister for Tourism [Mizzi] had informed Cabinet that Steward had obtained a loan from BOV to finance the construction of the Barts Medical School and that the Bank sought a guarantee of the loan from the government. The Minister for Health asserted that Cabinet was not aware of the implications of the agreement that was to be entered into – other than the role of guarantor that the government was to assume for the sums indicated – for the Minister for Tourism failed to highlight the broadening of the risk borne by the government, now liable to pay the concessionaire €100 million and the sum of the lenders’ debt in the case of court-declared nullity of the concession agreements.” (page 46, 4.4)

10. Government’s exposure stood at €200 million

“The Minister for Health [Fearne] informed the NAO that it was unaware of the developments leading to the government’s assuming of the €100 million liability in case that the concession was legally declared null. Elaborating on the implications of this development, the Minister for Health argued that its ability to seek redress for defaults arising from failures of Steward to honour its obligations was practically curtailed, fearing that such action by the ministry could result in a court-declared nullity of the concession, thereby triggering the payment of the €100 million liability and the lenders’ debt. The Minister for Health estimated the government’s total exposure at €200 million.” (Page 47, 4.41)