Konrad Mizzi “engineered” the side agreement which would have seen Steward receive €100 million if the hospitals concession was terminated by “misleading Cabinet”, the National Audit Office has said in its third and final part of its audit into the deal.

The National Audit Office (NAO) was requested by the Public Accounts Committee to audit the concession awarded by the Government to Vitals Global Healthcare Ltd (VGH) in relation to the Gozo General Hospital, Saint Luke’s Hospital and Karin Grech Rehabilitation Hospital.

The first part of this audit, issued in July 2020, focused on the procurement process leading to the award of the concession to the VGH, while the second part, published in December 2021, addressed the contractual framework entered into and its implementation.

The concession has since been annulled after the court found that it was “fraudulent.”  Steward have appealed the sentence, but have also said that they are pulling out of Malta regardless.

This third and final part of the NAO’s audit comprises the change of control of the concession from the VGH to Steward Health Care (SHC) and the progress registered thereafter.

“The initial interactions between the SHC and the Government immediately drew the NAO’s concerns for the conflicting accounts and the lack of records regarding these crucial exchanges obscured visibility,” the NAO said in a statement sharing the report.

The NAO had stinging words of criticism for the behaviour of officials ranging from then Prime Minister Joseph Muscat, his Chief of Staff Keith Schembri, and then Tourism Minister Konrad Mizzi – who was responsible for the concession.

“The limited disclosures by the then Prime Minister, the curt replies by his Chief of Staff, the failure of the then Minister for Tourism to cooperate with this Office, the omission of the Minister for Health from any meaningful involvement on the fate of this public health-related concession, the allegations of duress levelled by the then Director VGH and the anomalous role played by the former Chief Executive Officer VGH, later appointed the Chief Executive Officer SHC International, corroborate this Office’s understanding that this concession remained one distant from the standards of accountability and transparency expected of Government,” the NAO wrote.

The reason for the limited timeframe within which the SHC was spurred on to act by the Government and its willingness to do so, notwithstanding that the concession was fraught with controversy, were also matters that remained obscure to the NAO, it said.

“The false sense of urgency heightened this Office’s concerns about whether the Government’s interests were served and prompted focus on the conduct of those involved in the change of control of the concession. Such was the haste of those representing Government, that Cabinet was only requested to endorse the transfer of the concession after authorisation had already been granted by the Minister for Tourism and Malta Industrial Parks (MIP) Ltd to the VGH,” it continued. 

 The NAO said that with control over the concession secured by the SHC, its objective for negotiations was that of rendering the concession bankable, while the Government’s focus was on addressing the concession’s on-balance sheet classification.

“These negotiations proved to no avail, for the objectives of the parties remained diametrically opposed and the resulting differences were irreconcilable from the outset,” the NAO said.

The unorthodox dynamic that persisted between the Prime Minister and the Minister for Tourism, to the detriment of the Minister for Health, remained a matter of “grave concern” to the NAO. The delegation of responsibility for a health concession to the Minister for Tourism provided an opportunity for the exploitation of Government, creating a weakness leveraged by the SHC, the NAO said.

“The most evident exploitation was that secured by the SHC in terms of the Government’s liability to pay €100,000,000 and the lender’s debt to the Concessionaire in case of court-declared nullity of the concession agreements, irrespective of the defaulting party, a situation precipitated by the Minister for Tourism [Konrad Mizzi] and engineered through his misleading of Cabinet,” the NAO said.

Compounding matters was that Cabinet’s authorisation was not sought by Mizzi in instances when the Government acted as guarantor in several financing agreements entered into by the SHC and the Bank of Valletta, the NAO said.

The NAO noted that the first attempt at renegotiating the concession stalled due to the political upheaval that persisted in late 2019, resulting in the resignation of the Prime Minister and the Minister for Tourism.

It continued that there was an overall change in approach towards negotiations following the appointment of a new Prime Minister in early 2020.

“Subsequent attempts failed because that which the Government and the SHC sought to renegotiate proved not permissible in terms of the concession agreements and relevant legislation, for the parties now sought to fundamentally alter the nature of the concession. Earlier recourse to the DoC and the State Advocate would have avoided futile time and effort being expended by the parties. Certainty on the parameters of negotiation ought to have been established at the outset,” the office said.

The core agreement regulating the concession was the Services Concession Agreement. This Agreement set several concession milestones yet, aside from the completion of the Barts Medical School and other pockets of progress, all other milestones were not achieved by Steward, the NAO said.

The Health Services Delivery Agreement regulated the service delivery element of the concession. However, the NAO said that it was not possible for them to establish whether progress was registered in terms of level and quality of service following the concession of these hospitals, for the introduction of relevant indicators coincided with the SHC assuming responsibility and therefore no comparators are available.

Regarding the Emphyteutical Deed, circumstances relating to the transfer of control over the concession, arising from changes in the ultimate beneficial owners of the Concessionaire, drew the attention of the NAO.

When control shifted from the VGH to the SHC, the authorisation of MIP Ltd for the transfer of the shares was sought, consistent with the understanding that ownership of the Concessionaire had changed. This Office deemed the treatment of this transfer by the MIP Ltd as an intra-group transfer as incongruent with the fact that the ultimate beneficial owner had changed and therefore the payment of a laudemium to the Government was warranted. Nevertheless, this charge was not raised by the Government, the NAO said.

When control of the concession shifted from SHC International LLC to SHC Systems LLC, INDIS Malta Ltd (previously MIP Ltd) was not notified of the transfer, despite that ownership of the SHC had changed. The NAO contends that this too did not qualify as an intra-group transfer and therefore a laudemium could be charged. However, the Deed did not specify any consequence for failure to obtain consent for the transfer of the sites yet indicated that the non-payment of a laudemium would result in the nullity of the transfer.

The NAO also said that between 2016 and 2021, the Government paid the Concessionaire €268,600,000, with €52,700,000 paid to the VGH and €214,900,000 to the SHC.

Salaries of resources made available to the Concessionaire by the Government during this period accounted for a further disbursement of €188,500,000.

Therefore, the total cost incurred by the Government with respect to the Hospitals between June 2016 and end 2021 was €456,000,000.