In any democracy, there is a clear understanding that taxpayers pay what is due by them to the government and, in return, get the public services that they need in the most cost-effective manner possible. This relationship is built on the trust that should exist between the public and those who govern.
Two public services that have been partially-privatised are examples of the betrayal of trust by the administration led by former prime minister Joseph Muscat. The privatisation of the management of three public hospitals and the generation of electricity by a private consortium is based on business models in which taxpayers underwrite the risks and the private entrepreneurs pocket the profits.
The private-public partnership model has often been sold to the people as the ideal way to inject investment in the health and energy public sectors. Private enterprises’ involvement is considered an excellent way to underpin these projects with solid management and expert know-how to make these ventures a success.
The management of three public hospitals was handed over to Vitals Global Healthcare for 30 years. This was a company that had no medical track record and was run by an opaque set of investors. Vitals sold its concession to US Steward Health Care two years into the deal after racking up significant debt and failing to deliver on its targets.
The National Audit Office found that Vitals should never have been allowed to compete for the lucrative 30-year contract. There is evidence of collusion taking place between the company and the government ahead of the deal.
Yet, Muscat made a brazen, though unconvincing, attempt to sell this project as an excellent way to provide the public with a better health service. Testifying in court a few days ago, he daringly argued that the inclusion of a termination clause valued at €100 million, which would become payable to the concessionaires should the government rescind the management contract, was intended as a guarantee to local banks being asked to grant banking facilities to the private operators.
Muscat conveniently ignores the sobering reality that banks ask for sovereign guarantees when a public-private project is not bankable after being assessed solely on its commercial merits. The former prime minister had never missed an opportunity to criticise local banks for being prudent with their depositors’ money.
The same blatant disregard to taxpayers’ interest is also evident in the Electrogas project. The energy-generating private company has an almost risk-free business model thanks to a ‘security of supply’ agreement that commits Enemalta to buy 85 per cent of the annual energy generation.
The NAO rightly remarked that, through this lopsided public-private partnership in energy generation, “the risk was transferred in its entirety to Enemata and the government”.
The private company that enjoys the benefits of a captive monopolistic market would pocket all the profits. Times of Malta has just reported that, when the electricity demand fell in 2020 due to the pandemic, Electrogas suffered no serious cash flow problems, thanks partly to the security-of-supply agreement.
The government is doing well to engage in some damage limitation action by negotiating to take back the management of the three public hospitals. An even bigger step forward would be if it published the full details of the Electrogas deal and cleaned up the mess left by Muscat and Konrad Mizzi.
Public monopolies rarely guarantee good value for money to the citizens. Private monopolies are even worse when the public carries the risk and the private entrepreneurs are guaranteed to pocket the profits.