Malta could foot €100 million bill if Steward contract rescinded by court

Konrad Mizzi signed a 2019 agreement making any Steward breach of contract a government event default

Then Malta Enterprise Chairman Mario Vella and Dean of Barts Medical School Anthony Warrens in March 2015 when a memorandum of understanding was signed to launch an overseas campus at Gozo General Hospital
Then Malta Enterprise Chairman Mario Vella and Dean of Barts Medical School Anthony Warrens in March 2015 when a memorandum of understanding was signed to launch an overseas campus at Gozo General Hospital

The Maltese government is exposed to a new kind of risk on the Steward hospitals’ concession: information received by a magistrate carrying out an inquiry into the controversial public-private partnership, has revealed that Malta could face a hefty bill should the concession ever be rescinded.

MaltaToday understands that an agreement hammered out in August 2019 with former tourism minister Konrad Mizzi has given Steward Healthcare an “escape clause”, that turns any termination of its concession into a government default.

The wording is part of an agreement in which the government is acknowledging that a €28 million loan from Bank of Valletta to Steward Healthcare is acknowledged as “lender’s debt”.

In the agreement signed by Mizzi and Steward Healthcare, the government agreed that should the hospitals’ concession be terminated by a court of law – for whatever reason, and even if Steward is in breach of contract – such an event would be a government default.

That would mean that all debts incurred by Steward would be passed on to the government, and the American company would still be liable for a €100 million contractual pay-out for its equity.

MaltaToday understands the agreement has raised concerns inside government, because the clause might make it impossible for the government to terminate the Steward contract.

Steward acquired the 30-year concession to run three state hospitals as a private concern in December 2017 from Vitals Global Healthcare, an unknown consortium of medical entrepreneurs granted the concession in 2015. But VGH racked up millions in debt with nothing to show for it, negotiating a buy-out of some €15 million from Steward.

Later in 2018, Bank of Valletta granted Steward a €5 million overdraft facility and a €3 million loan; but in August 2019, BOV also consented to a loan of €22 million and another of €5.9 million to two Steward subsidiaries.

Apart from placing the hospital lands under Steward’s control as guarantees for the debt, the agreement gave Steward unprecedented generosity by accepting that should the concession be rescinded by any law, public order or decision, judgement or decree – effectively any government or court decision – such an event will be “a non-rectifiable government of Malta event or default.”

Government insiders baulked at the agreement, claiming the loan facility and Mizzi’s commitment to Steward was unknown to Cabinet colleagues.

And that’s because the 2019 agreement’s wording means the government has no wriggle room should Steward be found in breach of the concession by any tribunal: the decision will instantly trigger an obligation on government to pay out €100 million in cold cash, and take on any lenders’ debt, such as these BOV loans.

The American healthcare company was on the verge of being given wider berth on its concession back in November 2019, before former prime minister Joseph Muscat lost control of power in the wake of his chief of staff’s resignation in connection with the Daphne Caruana Galizia murder investigation.

Already the concession obliges the Maltese taxpayer to pay hefty penalties should the government default on the concession: €100 million in cash and any lenders’ debt incurred by Steward.

But should Steward default on the contract and not fulfill its obligations on the St Luke’s, Karin Grech, and Gozo hospitals, it would ‘only’ lose its equity – the investment it carried out during the PPP – although government would still have to pay the debt they incurred.

Together with Muscat, in November 2019 Steward was close to extending the grounds on which a ‘force majeure’ or national emergency default might incur, that is, situations where civil strife or war would make the operation unworkable. In such case, government would be obliged to pay Steward 50% of its equity, but also cover any debt the company incurred.

But Steward to add a host of other such ‘force majeure’ conditions, such as accidental loss or damage, strikes and work-to-rule situations, and even changes in laws such as those affected by EU regulations all situations that tend to affect the ordinary running of any business.

Vitals debts

Vitals Global Healthcare was a financial mess in 2017.

The 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.

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.

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.

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 di-rectors’ fee: €400,000 annually. 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.

Vitals’ total liabilities 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.

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