When the ship takes in water: how Labour's flagship projects are struggling

ANALYSIS | The part-privatisation of three public hospitals and the American University of Malta were flagship projects for the incoming Labour administration of 2013. They now appear to be sinking ships

Medical and educational tourism are the two niche sectors, the Labour government has championed since it came to power almost five years ago.

For four years, the international investments in these two areas formed the basis of the government’s response to criticism that it failed to attract new economic sectors.

The roping in of a private investor to upgrade and run three State hospitals and the creation of a new private university were, along with the financial turnaround at Enemalta, put up by the government as proof of its ability to attract foreign investment.

And all this was happening against a backdrop of above-average GDP growth, falling unemployment, a growing labour market and a diminishing deficit in public finances.

But the two key projects involving Vitals Global Healthcare – in the hospitals niche – and the American University of Malta – in the education niche – appear to have lost their lustre.

St Luke's hospital was handed over to VGH for complete transformation and the use as a medical tourism facility
St Luke's hospital was handed over to VGH for complete transformation and the use as a medical tourism facility

Mired in controversy since their inception over the credentials of the private investors behind them, and in AUM’s case, the environmental concerns of developing a campus on land outside the development zone, both projects have hit serious snags.

Problems are deep

The problems both projects face appear to be far deeper than the teething troubles that one could expect in new ventures.

Vitals Global Healthcare had to invest more than €200 million to build a new general hospital in Gozo and completely revamp the St Luke’s and Karin Grech hospitals.

The two niche markets would have served the economy long after the current construction boom is over

The aim behind the project was to have the private company attract foreign patients to Malta. Vitals would also make money off the State by selling beds for use in the public health service. At the same time it would relieve the government of the massive initial outlay to regenerate the three hospitals.

Apart from the spin-off created during the construction phase, the hospitals project would have generated medical tourism on a mass scale, contributing to economic growth.

But now, less than two years into their 30-year concession agreement (this is now also being questioned as doubts have been raised whether the concession was truly for 99 years), VGH are trying to sell out to American company Steward Healthcare.

The deal has not been sealed yet but the mere fact that the company that came with so much promise wants to move out after just 22 months has left a sour taste that can hurt the Labour government.

MaltaToday had reported that VGH faced problems to raise the necessary finance, which left many wondering whether shareholder money was ever going to be used, at least to get the project up and running. The project has stalled and although this is not entirely VGH’s fault, the prospective sale to Steward Healthcare is an indication that not all was well.

With flak coming its way from the medical profession over the decision to part-privatise public healthcare, the government will want to ensure the hospitals deal does deliver for the public.

Pulling the plug completely does not appear a viable option at this stage, especially when Steward Healthcare runs 36 hospitals in the US, giving it better credentials than the unknown VGH.

A university flop

Government may yet save its blushes if the American company steps in and lives up to the contractual obligations.

But if the hospitals project has the potential to get back on track, the situation is significantly different at the Bormla campus of AUM.

Jordanian investor Hani Saleh, through his company Sadeen Educational Investments, was granted a 99-year lease on land in Bormla’s Dock 1 and Zonqor Point in Marsaskala, to build two university campuses. The privately-funded project would see the creation of a new university catering for 4,000 students.

The government had championed the investment as a boost to the south of the island, pitting the ‘cleaner’ university campuses against the ‘dirty’ projects of the past that included a recycling facility in Marsaskala. This argument carries a lot of currency in the south, which has been plagued by heavy industries and power stations.

The promise alone of foreign students in the south and medical tourists in Gozo did have an initial impact on surrounding communities.

For starters, the housing market reacted to the developments – positively for landlords and home owners and negatively for tenants.

The opening of a top real estate agency along Bormla’s seafront signalled a revival in the area as a result of the AUM project, even though it was still on paper.

But the university with no track record has found it hard to attract students. At the start of the year, AUM even ditched its academic staff as a result of the low student intake.

It appears the financials are not making sense for a project that had set itself a target of 300 students for the first academic year.

With just 23 enrolled students that dropped to 15, it’s not exactly a missed target but a big flop, which is raising serious question marks on AUM’s viability.

Plugging the holes

Economic expansion may, for the time being, not require the hospitals and AUM projects. There is enough going on to continue generating above-average growth for the foreseeable future.

But these two flagship projects were not only about construction but the creation of two niche markets that would have served the economy long after the current construction boom is over.

Labour’s opening to the world in search of foreign investment was a political move that cut loose the ideological shackles that may have impeded previous Nationalist administrations from opening their arms to investors far and wide.

The investment in Enemalta by China’s Shanghai Electric has enabled the electricity corporation to return to black despite the scepticism on the model adopted by the government.

But whereas the reforms in the energy sector, with all the criticism levelled at the gas power project, have delivered visible results that directly benefitted consumers – lower utility tariffs – not the same can be said of the hospitals and AUM deals.

The latter two appear to be sinking ships and fixing them has to be a priority, even if it means terminating the deals or finding alternative investors with a better track record.

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