Vitals directors paid themselves €1 million annually in contract drawn up months before exit

In June 2017, debts inside Vitals Global Healthcare, the mysterious company granted a multi-million concession to run three state hospitals, were climbing and bank finance seemed impossible to obtain.

But VGH’s directors Ram Tumuluri and Mark Edward Pawley, the brains behind BVI offshore company Bluestone, signed off on a back-dated contract that set their directors’ fees at €600,000 and €400,000 annually, with a €5 million bonus for Ram Tumuluri. Three months later, talks were starting with US healthcare company Steward to acquire their concession. By then, millions in consultancy fees and debts had piled up.

Vitals Global Healthcare was a financial mess in 2017.

Just two years earlier, a mysterious group of investors had clinched a 30-year concession to run three Maltese state hospitals in a bogus ‘request for proposals’ tender run by Project Malta, the privatisation arm under former minister Konrad Mizzi’s purview.

By mid-2017, VGH was still without the necessary banking finance to take its project forward, a private hospital concern that would deliver a public healthcare commitment while making profits from a lucrative medical tourism component.

And yet, despite the existence of multi-million debts, and now even the suspicion of inflated consultancy fees being charged to expenses, VGH’s two directors – the Canadian Ram Tumuluri and Briton Mark Pawley – were about to sign off on a very lucrative payday.

MaltaToday has learnt that in June 2017, Tumuluri and Pawley signed on a back-dated contract for their remuneration to bind Vitals to pay them exorbitant directors’ fees despite no sign of clear progress on the hospitals concession project.

Tumuluri’s contract was that he be paid €600,000 annually, for the three years since the start of the concession – €1.8 million in total; as well as a €5 million bonus for the third year of the concession.

Tumuluri has claimed through a spokesperson in London that he had “deferred” his salary and bonus to the company. But a source close to the concession insists that Tumuluri was paid as part of a settlement in 2019.

Even Mark Edward Pawley, whose Bluestone Investments in the British Virgin Islands was set up as the ultimate beneficial owner of the Vitals group, was ensured a higher-than-normal directors’ fee: €400,000 annually.

So the two directors hastily drew up a contract that would pay both of them €1 million each year, on a project which was now destined to fail.

What happened to Vitals in 2017

• Income, mainly from government: €75 million
• Expenditure: €94 million; (of which ‘other expenses’: €24 million)
• Losses for the year: €18 million
• Accumulated losses: €27 million

Such was the precarious state of Vitals in 2017, that the new concessionaires, Steward Healthcare, discovered in 2018 that Tumuluri had never carried out any substantial accounting of the VGH operations, which is why it is only recently that the American company submitted accounts for Vitals’s first two years.

MaltaToday can reveal that in the very year that Tumuluri and Pawley claimed for themselves a combined €1 million in directors’ fees, Vitals’s total liabilities had exceeded assets by €27 million, with losses for that year alone amounting to €18 million.

But Steward finally paid Pawley and Bluestone a €9 million settlement to take over the concession, which together with Tumuluri’s claim amount to just over €15 million paid to the former investors.

But how had Vitals amassed so many losses without having achieved any substantial milestones in its hospitals project?

This is perhaps the more suspicious aspect of the Vitals concession, because sources believe that millions have been paid out in third-party ‘consultancies’ as well as inflated expenses charged by contracts taken out with supplies like Technoline on medical equipment and medicines.

Between 2016 and 2017, MaltaToday has learnt, Vitals’s total expenses ballooned from €45 million to €94 million. These costs mainly include €54 million in staff costs incurred from a staff complement of some 1,200 workers in 2017. But another €24 million in “other expenses” were also charged in 2017. Sources close to the concession believe millions in taxpayers’ cash flew out in 2017 to third-party consultants.

Bogus tender

In fact, it is now established that despite the impression of a public competition, the people behind VGH – Canadian national Ram Tumuluri, Briton Mark Pawley, and Pakistani businessman Shaukat Ali – had long been slated by Castille for the project.

Unknown to many was the fact that Shaukat Ali and his partners had signed a memorandum of understanding with Malta Enterprise back in October 2014 for the take-over of the Gozo hospital and possibly St Luke’s and Karin Grech.

By 2015, Shaukat Ali, through his company Pivot Holdings, had set up a joint company with Mark Pawley’s Bluestone Investments, to propose to the government a public-private partnership for the running of the Gozo hospital.

Another clue into the expenses incurred comes from Steward itself, whose president Armin Ernst recently penned a pointed letter to Prime Minister Robert Abela: in it he mentioned that Steward was dealing with issues of “non-conformity of the contract” of Shapoorji Pallonji as building contractor for the hospitals “with usual and good business principles”; as well as claims related to the financing of the VGH tender, and problems with former investors.

In comments to MaltaToday, Steward has already declared that “defining the exact use of all funds during [2015/6/7] is not possible due to the convoluted nature of the organisational structure of the prior concessionaire and the lack of proper financial accounting, but a good picture has emerged.”

Questions have been asked on how the supervising health authorities failed to ensure the proper use of public funds by Vitals Global Healthcare.

Steward has refused to be drawn into how Vitals’s operations have impacted the public purse. “To be clear, Steward was not hired as a retroactive policing entity but to provide high quality healthcare to the people of Malta. Unfortunately, though, these losses are now part of the concession and need to be considered going forward,” it has previously told MaltaToday.

Steward described Vitals company structure as a complicated and shifting network “comprising a multitude of organisations in a multitude of countries. We restructured the concession into a simple and transparent organisational structure, that is 100% based in Malta.”

It also referred to the purchase of companies such as Technoline and MTrace through the use of public funds, saying that it had unwound these companies to return the money to the hospital operations.

2018 accounts are expected to show a significant reduction in losses, with breakeven expected in 2019.

The company is, however, seeking a renegotiated contract with the Maltese government, that includes a higher payment for beds as well as an added €4 million for the payment of salaries. MaltaToday understands the increased payments are essential for the company’s cash flow.

“Steward has, to date, spent over $30 million to turn the concession around and has no cash flow problems. In fact, Steward has been recognised by the government for a remarkable turnaround of the VGH failure and finances. Multiple capital projects have been completed and creditors from VGH times settled.”