Responding to questions from MaltaToday about whether cabinet discussed a €100 million termination clause granted to Vitals as part of the hospitals concession deal, former Prime Minister Joseph Muscat claimed this is documented in a report published by the Auditor General.

This refers to a termination clause signed by then-Health Minister Konrad Mizzi in which the government bound itself to pay Vitals €100m should it decide to take back the hospitals. 

Muscat was asked: “did cabinet discuss the €100m clause that Konrad Mizzi signed?”. He replied: “Everything that cabinet discussed is minuted in the auditor general’s report and it contains very extensive minutes, yes, including all this”.

What is the Auditor General’s report?

Muscat’s reply refers to two reports published by the National Audit Office (NAO). In those reports, NAO provides a detailed breakdown of the project’s procurement process as well as the contractual framework that was developed in awarding the project.

In carrying out its analysis, NAO looked through extensive Cabinet minutes to understand the extent to which Cabinet was informed of decisions that were taken throughout the project.

What does the report say?

This analysis found that the hospital concessions deal was discussed in cabinet on the following dates:

March 12, 2015: Cabinet is informed of plans to grant a concession to develop the three hospitals through a memorandum submitted by Konrad Mizzi.

March 17, 2015: The procurement board for the project is approved “with urgency” by cabinet. NAO found this was the only instance in which the procurement process of the project was ever discussed with cabinet.

June 21, 2015: Cabinet is informed that Vitals Global Healthcare has been identified as the preferred bidder and is asked for authorisation to start negotiations.

June 23, 2015: Cabinet gives the go-ahead for negotiations to start.

October 13, 2015: Cabinet is informed that negotiations for several service agreements and the emphyteutical deed were completed but that another agreement dealing with the project’s financing was still being discussed.

October 27, 2015: Cabinet is informed by Konrad Mizzi that negotiations for all main contracts were completed and that Mizzi himself would be signing these contracts.

March 7, 2017: Cabinet is asked to extend the date by which VGH could present the government with a fully executed copy of the financial agreements until April 30, 2017. Cabinet approves this request.

July 11, 2017: Cabinet is asked to authorise an addendum to one of the agreements, despite this addendum already having been signed by Konrad Mizzi weeks before. Cabinet authorises this request.

December 19, 2017: Prime Minister Joseph Muscat informs cabinet of the “possibility of positive developments in relation to the concession”.

January 9, 2018: Cabinet is asked to endorse the request for the hospitals to be transferred from VGH to Steward Healthcare International. Cabinet endorses this request.

February 19, 2018: Prime Minister Joseph Muscat informs cabinet that the transfer of shares from VGH to Steward has been completed.

More broadly, the report concluded that although “cabinet provided a high-level endorsement of the concession”, there were several instances where decisions were taken without cabinet being informed and others where cabinet’s authorisation was only sought to rubberstamp agreements that had already been signed.

Specifically, NAO found that this happened in the amendments to the deal’s service agreements, as well as in the case of an addendum to the deal’s provisions on how human resources were to be deployed to the three hospitals.

According to the report, these included “crucial amendments to the dates by when the concession milestones were to be achieved”.

In another instance, the report found that government officials were particularly lax when it came to Vitals’ financial reporting obligations saying that they were “systematically granting waivers to VGH… without prior referral to cabinet for authorisation” and that Konrad Mizzi “first entered into agreements or commitments with the VGH to extend financial close, then sought Cabinet's approval".

Does the report mention the termination clause?

The NAO report mentions a termination clause signed as part of the Services Concession Agreement (SCA) in 2015.  It outlined that “under all cases of termination triggered by the government, the termination payment was to consist of €100m and the sum of the lender’s debt incurred”. 

However, the report does not clarify whether the SCA was scrutinised by cabinet. The report, at various points, states that amendments to the SCA were either not authorised by cabinet, or only presented to cabinet after they had been signed.

At no point does the report present clear evidence of cabinet discussing the €100m termination clause.

However this termination clause was modified in August 2019.

This agreement, also signed by Konrad Mizzi, protected Steward Healthcare and BOV if a court or other authority nullifies the contracts.

The agreement classified such an eventuality as a contractual default by the government, triggering a clause in the original contracts that will force the government to pay Steward Healthcare €100 million and assume its debts.

What does Muscat have to say?

Speaking to Times of Malta, Muscat pointed to the fact that his statement was made when doorstepped by a journalist and therefore “some of the details, in both the questions and the answers, might have not been clear”.

“I can confirm there are minutes of various cabinet discussions regarding the hospitals concession, including those relating to discussions about the €100m clause, its origin, consultations and interpretation,” he said.

“The NAO has access to the said minutes as part of the scope of the third part of its report covering the Steward takeover, which I believe is still underway. I assume that as in previous reports, the NAO will give an account or list Cabinet discussions, including this one.”

Verdict

The NAO report does present extensive cabinet minutes detailing the various discussions related to the project throughout the years. It also does make mention of the original €100m termination clause.

However, it does not present any indication of the clause having been discussed by cabinet, as stated by Muscat.  

It also does not mention the 2019 modification. 

His claim is therefore misleading, as although the claim may, in itself, be partly or entirely true, it is presented in a manner that is not representative of the facts within a broader context.

This article was amended to clarify a reference to the 2019 modification of the clause. 

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