Steward horror show reveals the inherent theft inside privatisation deals

In 2020, MaltaToday broke the story on the secret €100 million ‘prize’ for Steward Healthcare should its contract be rescinded by a court of law.

It was negotiated as a kind of super-default by the disgraced minister for PPPs Konrad Mizzi – sacked from Labour after Robert Abela became PM – under the blessing of prime minister Joseph Muscat, who gave birth to the original Vitals PPP.

The NAO’s third Steward report, published 15 May 2023, confirms in no uncertain terms the closed-circle management of this PPP under Muscat and Mizzi, with the near exclusion of the health ministry. Privatising three state hospitals to an American sale-leaseback merchant seemed imperative to save Labour’s pet project, sold first to the nation as a way of letting the private market deal with the costs of healthcare while it finances itself through medical tourism. That vision failed.

Both men seemed to have set so much store by this hospitals privatisation deal, so much so that the 2015 tendering process devised by Projects Malta (under Mizzi’s stewardship) has since been confirmed in court to have been fraudulently instrumentalised for the benefit of the chosen ones: unknown investors Vitals.

Later, the concession was conveniently sold – possibly under duress due to both Vitals’ failures and the pressure from the Muscat administration – to former Vitals CEO Armin Ernst’s American masters, Steward.

Konrad Mizzi, who refused to cooperate with the NAO in establishing his involvement in the entire PPP, now uses Facebook to issue his denials. The stuff liars do, of course.

But here is what we learn from this third NAO report:

1.    As early as September 2017, three months before the official handover, the OPM and Steward were in touch over the handover of the concession. Vitals were unable to deliver on the milestones they had been contractually bound, and the guy who knew most about this problem was its own CEO… Armin Ernst.

2.   The health ministry was kept out of the loop. Talks were held in New York and London – no records kept – between Steward, and OPM and Mizzi’s tourism ministry. No government lawyers, just an audit firm and private legal firm close to Mizzi.

3.   As Mizzi’s permanent secretary told the NAO, “[Steward] was probably aware of this situation and had inside information as to the difficulties in the implementation of the concession and in the securing of financing.”

4.   It was Vitals’ CEO Armin Ernst who made the play in these negotiations thanks to his “anomalous yet central role” – up until January 2017 he was CEO of Vitals, and then was placed on leave of absence for breaching his contractual obligations, while still paid a salary. In August he resigned; a month later he asked Vitals to waive his employment contract’s non-compete clause. Why? Because he was being made president of Steward’s new international branch. Vitals refused, but of course Ernst did not care, because he was working for Steward in a clear conflict of interest. He even tried to crowbar his way into the credit facility Vitals was trying to secure from Deutsche Bank. When Vitals protested, Ernst “submitted correspondence to the bank wherein he defamed the VGH and the director VGH. According to the director VGH, the defamatory statements made led Deutsche Bank to engage its anti-money laundering department, which in turn triggered an evaluation by its risk committee.”

The big pay-off

After taking over the concession, in 2018 Steward and the OPM and Mizzi locked horns to enter negotiations, with Mizzi and Muscat, to make the concession “bankable”.

It was here, as revealed by MaltaToday in 2020, that Steward gained a “most evident exploitation” with the €100 million liability from government, as well as any lenders’ debt, in case of court-declared nullity of the concession agreements, “irrespective of the party attributed the default, a situation precipitated by the Minister for Tourism and engineered through his misleading of Cabinet.”

So much for big brains, Konrad Mizzi made it profitable for Steward to be kicked out – and this after then Opposition leader Adrian Delia had filed the case for rescission of the Steward deal.

Can you imagine? Mizzi and Muscat socialised the risk of a court case filed against a private company… it was a bailout (just like that Café Premier for-reasons-unknown sweetener).

Compounding matters, the NAO says, was that Cabinet’s authorisation was not sought by Mizzi when government acted as guarantor in several financing agreements for Steward with Bank of Valletta – because it was in this financing agreement that the €100 million default clause was included.

And what did Malta gain from this contract?

1.     Steward failed to invest the required capital investment in the hospitals it took over (it never cared, that’s how the Steward/Medical Properties Trust hospital sale-leaseback works – don’t invest if it makes no profit, make sure the tenant pays the rent so that they pay back the shareholders’ dividends); the hospitals were left derelict;

2.     Government – the taxpayer, us – kept paying for the labour inside Steward’s hospitals for a total of €456 million: €52m to Vitals, and €214m to Steward; plus another €188 million for salaries of resources.

3.     We would have still paid this money for State health resrouces in the three hospitals, but the NAO said the value for money here was “fundamentally undermined” by the fact that taxpayers were financing the 1,536 workers transferred to Steward (from the formerly-State hospitals) at a value higher than the reimbursement secured, €32 million. Government was also paying these workers higher salaries above real annual increases, “aggravating the discrepancy between the real cost to government of resources made available to the concessionaire and the amounts recovered in relation thereto.”

Get the drift? All the risk for the privateers in this deal concocted by Joseph Muscat for the mystery investors from Vitals, all friends and crocodiles known to Pakistani middleman Shaukat Ali, and Steward, was borne by us, the taxpayer. We paid high costs for a sub-par medical service that was not worth the ink on paper – all risks socialised, all gains and profits ‘privatised’ for shareholders and Steward’s top brass.