Agreements signed by the government with Vitals throughout the hospitals' service concession were often changed to “soften the conditions” for the concessionaire, the court heard on Thursday. 

“We felt that every addendum went against government interests,” said Charles Deguara who was called to testify on Thursday in the money laundering proceedings against Joseph Muscat, Keith Schembri, Konrad Mizzi and other people who are linked to the fraudulent privatisation deal struck down last year by the courts. 

The Auditor General testified at length about three reports, which his team of investigators had worked on after receiving a formal request by parliament’s Public Accounts Committee and a later request by former health minister Chris Fearne. 

The first report focused on the tendering process, the request for proposals and the bids leading up to Vitals Global Health Care clinching of the deal for the three government hospitals. 

The auditor general’s office focuses on issues of good governance.

And right from the start, there were red signs for the office. 

One of the issues that “worried most” the investigators was the fact that a memorandum of understanding was signed some five or six months before the request for proposals was published. 

That ran counter to public procurement regulations which are the “Bible” for good governance, said Deguara. 

There were media reports about that MoU yet when the NAO asked Malta Enterprise for a copy, they were told it could not be found. 

They then asked the Office of the Prime Minister and were met with the same reply. 

Some two weeks after the auditor’s office had published its first report, news came from OPM informing that the MoU had been found. 

A copy was sent to the Auditor General and a report about it was published as an addendum to his audit report on the hospitals deal. 

But that MoU was just one of many shortcomings as far as good governance was concerned. 

The project was handled by then-Energy and Health Minister Konrad Mizzi.  However, most of the input came from the energy side. Health was not involved in the project that was essentially health-related, observed Deguara. 

“We concluded that health should have been given a more active role and consulted more” on the “the biggest” project undertaken by the government. 

Project would have cost €4 billion

Vitals' bid “should not have been accepted” Deguara said, adding that “it was too ambitious.

Vitals could never keep those timelines, they had no experience in running hospitals and never set up medical tourism which was one of the reasons why they did not invest in the project. 

The feasibility study was also inadequate.

A project of such magnitude which, if it were to continue was estimated to cost some €4 billion, called for “a much more robust feasibility study.” 

When granting the concession, the government reserved an option to grant an extension for 69 years. 

Vitals took that option as a fact when making their financial workings, taking it for granted that they would get the extension “automatically”.

Risks and rewards ought to have been apportioned between the government and the concessionaire. 

However, the auditor noted that the “government continued to bear the risks while Vitals got advantageous conditions.” 

He said: “It was unfair on the government.” 

Signed agreements between the government and the concessionaire were often subsequently altered, “sometimes within a matter of days,” in such manner as to “soften conditions” for Vitals.

“That was something we didn’t like at all as far as good governance was concerned,” said Deguara. 

One addendum the auditor felt was “totally against government interests” meant that the government “lost much of its power” in enforcing milestones on the concession. 

That addendum meant the government “lost its strength in keeping the concessionaire accountable”.

Vitals also did not file any audited accounts during the first four years of the concession. 

Accounts by an independent auditor were presented later “making obvious Vitals' financial difficulties.” 

The auditor who signed them off made a written note, voicing doubt whether the concessionaire could move forward. 

There were “great issues,” said Deguara. 

“What could the government do once those financial statements were not published?” asked Attorney General lawyer Rebekah Spiteri. 

“It could impose sanctions… but I cannot answer why it didn’t. For some reason the government decided to stay put,” replied Deguara. 

His office also flagged concerns about the manner in which the takeover by Steward from Vitals was handled.

The move was authorised by Mizzi as then Tourism Minister.

“But we were given no documentation as to how these contacts happened… How did Steward enter the scene?”

Government representatives told the auditor general’s team that it was Steward which approached the government first. 

“But we got conflicting versions.”

It was a “hasty” process and the auditor’s office could not understand the need for “such urgency.” 

Yet when they commented about the haste, they “got no reply.” 

The case continues later this month.