The big mystery: If nobody benefits, why did Mizzi give Steward €100m exit penalty?

The big question in the Adrian Delia case on the hospital's concession is why former minister Konrad Mizzi, now sacked from the Labour parliamentary group, inked a hushed-up side letter to the Steward agreement in 2019 to include the €100 million ‘exit penalty’.

MaltaToday revealed the existence of the side letter in March 2020, showing how the Maltese government was exposed to a hefty bill should the concession ever be rescinded.

The agreement was hammered out in August 2019 when Mizzi gave Steward an “escape clause”, that turns any termination of its concession into a government default.

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

But the agreement laid down 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.

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

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guarantees for the debt, the agreement gave Steward unprecedented generosity by accepting that should the concession be rescinded by any law, public order or decision, judgement or decree – effectively any government or court decision – such an event will be “a non-rectifiable government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.

The question indeed is: why did Mizzi do it? The 2019 agreement does not make sense because it gives government no wriggle room should Steward be found in breach of the concession by any tribunal – as in Delia’s case. So a decision rescinding the deal 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.

Certainly enough, Mizzi has been tight-lipped on the Steward deal. In the Delia case, he refused to answer questions about the deal for fear of self-incrimination when he testified in court. He declined to answer a flurry of questions with the stock phrase “I choose not to reply”, given that he had not given full disclosure in ongoing magisterial inquiries into the deal.

Mizzi claims Cabinet was regularly updated in detail about developments, although various ministers disagree. The 2019 side letter, for example, was only discovered after a magisterial inquiry was kick-started into the hospitals’ concession. The permanent secretary in Mizzi’s tourism ministry, Ronald Mizzi, told the court in the Delia case that he was not involved in talks concerning the €100 million agreement and learnt of it through a Cabinet memo distributed the same month it was signed, in August.

READ MORE: Adrian Delia claims Steward’s endgame is to cancel hospitals contract to claim €100m penalty

November 2019 negotiations

Ironically, Steward was close to clinching wider berth on the contract in November 2019, but then former prime minister Joseph Muscat lost power in the wake of his chief of staff’s resignation in connection with the Daphne Caruana Galizia murder investigation.

The concession already obliges the government to pay out €100 million cash should the government default on the concession: €100 million in cash and any lenders’ debt incurred by Steward.

Should Steward default and not fulfil its obligations on the St Luke’s, Karin Grech, and Gozo hospitals, it would ‘only’ lose its equity – the investment it carried out throughout the concession – but 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.

READ ALSO: Steward: government will refuse €100 million termination penalty