[WATCH] No due diligence on Vitals before award of hospitals, Nexia boss admits

Vitals Global Healthcare was set up a month before the bid and had a capital of €1,000

VGH amassed €36 million in debt with nothing to show for it
VGH amassed €36 million in debt with nothing to show for it

Manuel Castagna, Director of audit firm Nexia BT was grilled on the witness stand by lawyers Edward Debono and Adrian Delia this afternoon.

Nexia BT had advised the government on the sale of five hospitals to Ram Tumuluri’s Vitals Global Healthcare.

Castagna appeared before Mr. Justice Francesco Depasquale this afternoon. He said he was only involved in the bidding stage and that it was clear from the RFP that the government could have changed or rescinded the contract.

“As an accountant, the financing of these 5 hospitals, didn’t it appear to you at the beginning that what they were proposing was not sufficient. Did you not realise that it was not capable of doing this?” asked Debono pointedly.

“No. The business plan and projections….with the payment and financing from government [it] would be viable and profitable.” “So no further guarantees were required?” asked the court.

The government later needed €360 million to guarantee it, suggested Debono.

“These millions before the beds were even available, and you’re saying they were viable? And the government needed to pump in €360 million?” asked the lawyer.

“I can only tell you that at the bid stage it was viable. I don’t know or have visibility of what happened after,” replied Castagna. In the preliminary bid stage, the “assumption that it would be viable” depended on medical tourism, he added.

“But you were so wrong that the government had to guarantee a further 360 million. Is it not obvious that your assumptions were very, very wrong?” Debono thundered.
“No. The initial projection was that it would be a viable project…I didn’t go wrong, they went wrong,” Castagna replied. “Who is ‘they’? The Maltese people?” asked the lawyer before being brought to order by the judge.

Due diligence involves looking into the individual client for money laundering considerations, said Dr. Debono. “What investigations did you carry out to ascertain that Ram Tumuluri would deliver and into his commercial past?” “No we did not do this investigation,” came back the reply.

“Are you telling me that you advised the government to go for someone who you hadn’t even investigated the past of?” asked the lawyer incredulously.

The advice the adjudicating board, of which Castagna had formed part of, had given was that this was the “ideal setup,” Debono said. “Can you tell me how you can give good advice and not open the government’s eyes to see this fact that there was no due diligence?” asked the lawyer.

Castagna retorted: “we were convinced that we know what our remit under the RFP is.” The judge observed that the court had yet to be shown this RFP.

“It wasn’t the remit of the board... Based on the bid the committee is referring vitals as preferred bidder. Preferred bidder means start negotiating with him,”
If it emerged that there was wrong information in the bid it could annul everything from then on, explained Castagna.

“The other two bidders were excluded for non compliance. This wasn’t a question of best and second best, but in this case he had the only bid.”

So lacking was the due diligence, that Castagna said he only found out about Tumuluri’s bankruptcy through the media. Tumuluri’s only experience in the field was that he had once run an Ayurveda clinic, suggested Debono.

At times Delia would take over examining the witness, firing accusatory questions at him in quick succession.

“Did you have certainty that Vitals would do the work itself or not?,” Delia asked. “Nexia BT were to provide evidence of the bidder’s technical competence.”

“What evidence was this?”

“Technical competence was carried out by Charles Grixti.”

“He’s a medical expert,” pointed out Delia. “What about the construction expert?” “We had none,” replied the witness.

“At this stage I had no evidence, the terms of the RFP meant that we could have summoned the bidders to clarify. We couldn’t go to check,” Castagna said.

Delia wasn’t done yet. The company was set up less than a month before, he said. “As an expert, a partner in Nexia BT, Can a company with €1,000 capital borrow €60 million, €30million? “It has been done.” “With collateral,” added the lawyer. “What collateral?”

“Based on the bid, we felt that the project could go to the next stage. When the contract was signed, I can’t say whether the banks were parties to the contract because I wasn’t there in that stage.

“What searches, what peace of mind did you have that it could fulfil its obligations?” The board had been given letters of comfort from reputable banks, Castagna replied.

At the time we felt it was a good bid, had the bid materialsied

Warned by the lawyers not to carry the can for anyone, he said “I am not carrying cans for anyone. I am Manuel Castagna, and I am carrying the can for myself only.”

Had the stage come for the government to take back the hospitals “that had been gifted to these thieves for nothing”? asked Debono.
“If there was something that went wrong, whoever was monitoring it had the ability to rescind the contract. The government had options to remedy breaches. Performance guarantees and other clauses, he said.

Debono suspended the witness’ testimony. The case continues on 23 September.

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