A €100 million termination clause in a deal to privatise three state hospitals was included as a way to guarantee a bank’s loan without violating EU state aid rules, former prime minister Joseph Muscat claimed on Monday.
The clause binds the government to pay that amount to Steward Health Care if a 30-year deal to privatise three state hospitals is ended prematurely. Edward Scicluna, who was finance minister when the deal was negotiated, had testified last month that he only learnt of the clause after it was signed.
Testifying on Monday, Muscat said that the clause was included as a way to cover risk a local bank was exposed to as part of the privatisation deal. The government could not guarantee the bank's loan without falling foul of EU rules, he said.
“So while avoiding the state aid trap, in case the contract was annulled in court, the government would take the medical school and make good for all of it,” the former prime minister said.
EU state aid rules are designed to prevent member state governments from giving businesses an advantage over their rivals, distorting competition.
The €100m clause was presented to cabinet, Muscat testified.
The former prime minister was appearing as a witness in a civil case filed by former opposition leader Adrian Delia, who is seeking to have a 30-year deal signing away St Luke's, Karin Grech and Gozo General hospitals to Vitals Global Healthcare revoked.
Speaking later, Delia said that Monday's testimony meant either Muscat or Scicluna had lied under oath about the €100m clause being presented to cabinet.
Former minister Konrad Mizzi was also due to testify on Monday but submitted a court application earlier in the day stating that he is in quarantine after returning from the UK on January 11. Mizzi will now testify on February 8.
Sources have said that the government is currently in talks with Steward to take back the three hospitals while leaving the US company to equip and maintain them, in an attempt to end the deal without incurring the €100m penalty fee.
In his two hours of testimony, Muscat said that he assumed responsibility for the concession and that privatising the hospitals made sense in Malta’s context. But he also insisted that the final decision rested with cabinet and that his ministers had made “12 decisions” about it.
Nothing was done behind cabinet’s back, he told the court, and the "basis" of the contract was not changed.
Konrad Mizzi, who spearheaded work on the hospitals deal, has previously said that all ministers approved the contracts.
In two hours of testimony, Muscat also said that:
• Taxpayers are currently paying €64,000 a day to Steward, with the figure rising to €250,000 once all upgrades and refurbishments cited in the concession are met.
• The Barts Medical School in Gozo was included in the project to make it viable to the concessionaire, as the government did not want the operator to charge fees for medical treatment.
• An MOU signed with the original concessionaires, Vitals Global Healthcare, was substantially different to the request for proposals issued which Vitals eventually won later that same year.
• He did not recall who first mentioned Steward to take over from Vitals as the concessionaire.
From Vitals to Steward
Vitals Global Healthcare – a company with no medical track record run by an opaque set of investors - was handed the keys to three state hospitals for 30 years in late 2015.
It sold that concession to US giants Steward Health Care just two years into that deal after racking up significant debt and failing to deliver on its targets.
The National Audit Office has found that Vitals should never have been allowed
to compete for the lucrative 30-year contract, as there was evidence of collusion between the company and government ahead of the deal being opened to public offers.
Following Muscat's testimony, judge Francesco Depasquale adjourned the case to February 8, when Konrad Mizzi will testify and auditor-general Charles Deguara will present a copy of the document featuring the €100m clause.
Lawyers Paul Lia and Charlon Gouder represented Muscat. State advocate Chris Soler appeared on the government's behalf. Lawyer Edward Debono assisted Adrian Delia, who is himself a lawyer.
As it happened
Live blog ends
1.57pm This live blog will end here. We'll have a summary of the key points from Muscat's testimony available at the top of this article shortly.
Thank you for having joined us.
Case adjourned to February 8
1.50pm The judge adjourns the case to February 8 at noon, when auditor general Charles Deguara will present the document and Konrad Mizzi will finally testify – if not in person, then by videoconferencing.
Auditor general to be summoned
1.48pm Lawyer Edward Debono asks the court to order the auditor general to present a copy of the side letter featuring the €100m clause.
The State Advocate says they have no objection, provided doing so does not prejudice the auditor general’s position.
The court minutes that request and orders the applicant to summon the auditor general to appear at the next sitting. The document will not be made public if the auditor general is hesitant, judge Depasquale adds.
Robert Abela's paperwork
1.45pm Delia refers to documents which prime minister Robert Abela made reference to in parliament.
Muscat says he did not have a copy of that document.
Delia: Can you confirm who signed that contract?
Delia: Can you confirm it went to cabinet?
Adrian Delia is done asking questions.
'Basis of contract was not changed'
1.40pm Delia: Was there a problem with extending time limits?
Muscat: I cannot answer that.
Delia: Did Konrad Mizzi sign anything behind cabinet’s back?
Muscat: I can assure you that the minister did not do anything without cabinet approval. The basis of the contract was not changed.
Judge Depasquale asks Muscat whether there was a change in time frames.
Muscat: That I cannot answer.
Who suggested Steward?
1.38pm Delia: Who suggested Steward? Was it Vitals, or the government?
Muscat says he does not know.
“I had no idea who Steward were. The government was not looking for another concessionaire, it was still with Vitals,” he says.
Delia: Was there a clause in the original contract requiring government approval in case of a takeover?
Delia: Was there some sort of opt out clause? Did they have some form of protection? Do you know if terms were changed?
Muscat: There were negotiations, but not about St Luke’s, Gozo or the new hospital.
MOU 'was different to RFP'
1.33pm Delia steers questions to the MOU.
Delia: For how long did the government entertain discussions on the basis of that MOU, signed by Chris Cardona on October 10, 2014? Was it renewed?
Muscat: I do not recall that it was. We did not agree with it and it was not renewed.
Delia: That MOU ended in February 2015 and the concession was dated November 2015, with a procurement report in June. The report mentions the same people who were given the concession. Do you insists that it was coincidental?
Muscat: The MOU and RFP were not the same. It was not just a comma or full stop [that differed].
Vitals 'satisfied selection criteria'
1.29pm Muscat insists Vitals “satisfied all selection criteria” listed in the request for proposals.
The judge asks who set those criteria.
Muscat: It was a government decision.
Judge Depasquale: By the ministry?
Muscat: With my approval too.
1.23pm Delia moves on to Projects Malta and witnesses who testified in previous hearings in the case. They all said that they acted as a registry and did not kick the privatisation process off, he says.
“They handled project administration given to them by the ministry,” he says.
Muscat says Delia is “mixing things up” and starts making reference to the MOU signed between the government and Vitals.
But Delia stops him short.
“I’m not talking about the MOU. I’m talking about the project. They [Projects Malta] were practically alien to it. They did not do due diligence, that was done by someone else.”
Vitals 'received €250m but spent it too'
1.17pm Muscat tells the judge that he objects to Delia’s description of the concessionaire having “cashed” [inkassaw] money.
Delia: €265m in five years. Did they take those millions? Did €6m go to [Vitals director Ram] Tumuluri as a settlement fee?
Muscat: The figures are all accounted for. They received the €265m, but they spent them too. They don’t just send invoices and the government pays. The government verifies.
Judge scolds lawyer and witness
1.13pm Delia returns to the €64,000-per-day figure which Muscat said Steward is currently receiving.
Muscat says the money also covers maintenance.
“I hope not maintenance of St Luke’s,” Delia quips, alluding to that hospital’s pitiful state.
As the two politicians spar, the judge reprimands both of them.
“You’ve turned here into Xarabank! You can go out there, face the cameras and have your say. But not in here. Here, I only want relevant questions,” he says.
Muscat, joking: It’s because we’ve missed each other.
Medical school was 'to make project viable'
1.09pm Delia: Was the medical school meant to directly serve the people?
Muscat: There’s misinformation out there. We did not want to introduce fees for medical services, so to make it sustainable we needed investment. We got an English school of international repute [Barts] to train students in Gozo.
Delia: But was that the original plan. The first substantial investment, of €35m, was for the medical school.
Muscat: That was the way of making the investment viable.
The former prime minister is getting heated.
“Mater Dei took all those years to build and the concrete was not up to standard, and you come here to speak about this!” he tells Delia.
'You're clutching at straws'
1.05pm Delia pushes on with his argument that Vitals failed to deliver. Were Vitals meant to add 450 hospital beds?
Muscat replies with a jeer: “You’re clutching at straws and still drowning,” he tells Delia.
But the PN MP presses on.
“Tell us. You’re under oath. Check the contract. I’m not telling you that they added 30 or 40 beds. I’m saying they did nothing.”
Muscat: I’ll rely on what you said. This is political, not legal.
The judge intervenes and says the witness has answered.
Delia takes over questioning
12.58pm Adrian Delia takes over questioning.
“Bonġu,” he and Muscat tell each other.
Delia asks Muscat about the investment that was planned for the sector and tells him that it appears his plan had “failed”.
Muscat, as he did earlier, rejects that.
Delia: What did Vitals do? Did they improve the situation?
Muscat: First you bind the investor's feet, and then you expect him to run. What about the EU-level obstacles? Or perhaps it was your predecessor [as PN leader] Simon Busuttil back then.
12.52pm Questioning turns to the €100 million termination clause.
Muscat says the €100m clause was a sort of backdoor guarantee for a local bank that was exposed by the deal – a way to ensure the bank was safeguarded.
The bank had sought a state guarantee but that could not be granted, he says.
“So while avoiding the state aid trap, in case the contract was annulled in court, government would take medical school and make good for all of it. That’s the only thing I can recall about this €100m issue,” he says.
Muscat is asked whether he has a copy of the agreement.
"That's cabinet, and I think I'm already borderline when speaking about this," he replies. "But I had to clarify."
12.46pm Debono asks whether parliament was informed when parameters concerning the deal were changed.
Muscat says he does not recall.
Debono: They could not transfer shares unless certain milestones were achieved.
Muscat: Why don’t you go and check what happened with Palumbo?
Debono: We're not talking about that now.
[Debono's legal firm, Fenech & Fenech, were involved in the deal which saw Palumbo take over Malta Shipyards in 2009.
Hot under the collar
12.39pm Things are getting heated – Muscat is speaking very aggressively here.
“You don’t know what you’re saying,” he tells Debono, who is insisting that no work was done.
Muscat then argues that it would have been "irresponsible" to turn down the offer of a major US company [Steward] seeking to do business in Malta.
"I believe in the private sector, it's had a crucial role in health. And under EU financial rules - when the EU was as attentive as hawk, not like today's pandemic scenario - the only way of having a sustainable and accelerated [health] project was through privatisation," he says.
"As a strategy, it [privatisation] was the best way forward. When I criticised Vitals, I did so to their face."
'Privatisation deal is ground rent'
12.36pm Debono tells Muscat that none of the concession targets have been met.
Muscat insists that’s not true and argues that the hospitals continue to be owned by taxpayers. He says the concession deal is essentially a ground rent, with full ownership reverting to the Maltese people once its term expires.
Debono points out that the term is however renewable.
Muscat then rattles off some of the work done so far.
“There’s a €35m medical school in Gozo. Then an orthotics and prosthetic unit. €2m. An additional 28 beds at St Luke’s, an air ambulance for Gozo. New orthopaedics wards, additional capacity at the IC [intensive care] unit. So it’s not that nothing was done.”
Muscat and his social media blitzes
12.31pm Meanwhile, it appears that Muscat’s testimony is again being accompanied by a social media campaign - much like he had done while testifying in a public inquiry into Daphne Caruana Galizia's assassination late last year.
A series of posts with his court statements are being published on his official Facebook page, while he's in court testifying.
'It's costing €64,000 a day'
12.28pm Muscat says it’s not true that taxpayers are forking out €250,000 a day for the hospitals deal, as has been reported.
The real figure is €64,000 a day, he says, or €23m per year.
Muscat says taxpayers will be forking out €250,000 a day once St Luke's, Karin Grech and Gozo General Hospital have all been refurbished and the concession targets have been met.
The concession was still not making any profit by the time he resigned as prime minister, he says.
'Decision was cabinet's'
12.25pm Muscat is asked if the final decision was his or cabinet’s.
Muscat: Vitals MOU was dropped before public call
12.23pm Muscat says that Konrad Mizzi and Chris Fearne had attended a presentation about the project and reported back that it “did not fit our vision for the health sector”.
“I then instructed them to issue a call to fulfil our vision. As far as I know the MOU with third parties had been dropped. The Vitals bid was totally different from that MOU.”
Debono: The Auditor General did not say so.
Muscat: “The auditor did not say the MOU was the same as the request for proposals.”
'I did not interfere'
12.20pm Edward Scicluna did not say so, Debono tells Muscat.
The former PM is adamant: “I don’t know what he said, but it was put to cabinet”.
Debono asks whether the project was then put under the aegis of Projects Malta.
Muscat says it “ended with the entity involved” as happened in all other similar cases.
Debono notes that witnesses from Projects Malta had testified that they were effectively paper pushers in the process.
Muscat: “I did not interfere. But there was a whole process.”
Muscat begins his testimony
12.08pm Muscat takes the oath and his testimony begins.
Debono asks him: Were Konrad Mizzi and Chris Cardona briefed about Vitals by you or cabinet?
Muscat: It was the competent minister – Energy and Health [i.e. Konrad Mizzi] who made the call. Not Projects Malta. There are 12 cabinet decisions in this regard.
Konrad Mizzi back in quarantine
12.05pm Konrad Mizzi is in quarantine – again.
The former minister-turned-independent MP filed a court application this morning informing the judge that he went to London on January 11 and had not been served with a summons for today’s court appearance.
He’s now in mandatory quarantine, judge Francesco Depasquale says.
Lawyer Edward Debono points out that it’s the fifth time Mizzi has been summoned to testify and suggests having him testify remotely.
The judge says that if Mizzi does not turn up the next time he is summoned, he will have to testify using electronic means.
12pm Muscat did not reply to journalist’s questions on the way in, saying he would say all he has to in court.
Muscat in court
11.57am Joseph Muscat has entered the court, accompanied by a bodyguard and lawyers Paul Lia and Charlon Gouder.
State advocate Chris Soler is here, as are lawyers Edward and Nick Debono, representing the plaintiff, Adrian Delia.
Recap - what is this all about?
11.50am Vitals Global Healthcare – a company with no medical track record run by an opaque set of investors - was handed the keys to three state hospitals for 30 years in late 2015.
It sold that concession to US giants Steward Health Care just two years into that deal after racking up significant debt and failing to deliver on its targets.
The National Audit Office has found that Vitals should never have been allowed to compete for the lucrative 30-year contract, as there was evidence of collusion between the company and government ahead of the deal being opened to public offers.
A court has also heard how Steward was given a €100 million ‘termination clause’ which would bind the Maltese government to pay that sum to the US company if the 30-year concession was ended prematurely.
Edward Scicluna, who served as Finance Minister when the deal was signed, testified under oath last month that he only learnt of that clause after it had been concluded.
Witnesses have testified that negotiations were led by Konrad Mizzi’s ministry.
The government is now understood to be negotiating a new deal with Steward which would see the three hospitals return to the state, with the US company contracted to equip and maintain them.
11.44am Hello and welcome to this live blog. We're at the Valletta law courts - in hall 15 to be precise - where two high-profile witnesses are expected to testify in a civil case to revoke the Vitals hospitals deal.