NAO report slams VGH hospitals concession deal

The National Audit Office (NAO) has slammed the deal between the Maltese government and Vitals Global Healthcare (VGH) over the concession of three of Malta’s public hospitals, saying VGH should have been excluded from the bidding process let alone win it.

The damning report clearly states that VGH should have been disqualified because of what the NAO described as “collusive behaviour” between the government and the company. It referred to the secret deal which was signed before the issuing of the tender saying the deal was “predetermined”, as The Shift had stated in its investigation more than a year ago.

The 219-page report highlights serious shortcomings in the process by which VGH was awarded the concession as well as the lack of transparency in the process which led to the signing of the multi-million euro deal.

The long-awaited report by the NAO questions the integrity of the concession and the government’s reluctance to provide a copy of the agreement. It makes particular reference to a letter by the Bank of India sanctioning funding for the project that was signed before the Request for Proposals (RFP) was even issued.

“This office deemed this document as definite evidence of VGH’s prior knowledge of the planned project and proof of collusion with government, or its representatives,” the NAO added.

The report confirms that a concession was granted based on an RFP with unrealistic timelines and awarded to a company which was registered in Malta only a month before the call was issued.

This NAO report, one of three (two more reports are yet to be published at a later date), comes following a series of investigations by The Shift which revealed the dirty dealings and backdoor manoeuvres in this project. It also comes only days after the court heard how no proper due diligence was carried out on the company being awarded the concession for the hospitals.

The investigation by the NAO took three years to complete. A request was filed in 2016 following suspicions about the deal fronted by a known fraudster, Sri Ram Tumuluri. The original owners of the concession sold it off soon after for the grand sum of €1 to Steward Health Care, whose CEO Armin Ernst was present from the start working for both companies.

The “abusive language in regard of The Shift News” used by Ministers Edward Scicluna, Chris Cardona, and Konrad Mizzi, in their response filed to the request for a magisterial inquiry on the Vitals Global Healthcare deal, led to an incident report on Malta on Mapping Media Freedom that was taken up by the Council of Europe. A magisterial inquiry into the deal is still ongoing, in which The Shift has presented its findings.

The NAO report goes into the details of the procurement process up until the final agreement. The main points highlighted in the NAO report include:

·        The NAO states that the overlap between the agreement and the actual concession was “clear and created major doubt and concern regarding the integrity of the eventual concession”. The NAO says further concerns increased in light of the government’s reluctance to provide a copy of the agreement.

·        It states that the inclusion of the three hospitals in question, Gozo General Hospital, Karen Grech and St Luke’s Hospital was made without proper explanation as to whether this will benefit the government in any way. It also shows how the Ministry of Energy and Health (at the time run by Konrad Mizzi) also failed to involve the Finance Ministry despite the substantial disbursement of public funds for the concession.

·        The feasibility report was bereft of any form of independent analysis or critical thought. The NAO assessment also states that although minutes from Projects Malta Board of Directors meetings preceded the feasibility report by several months, reference was already made to the government’s commitment to issue the concession, with details of how it would be shaped.

·        It remains unclear how Projects Malta issued the RFP without ministerial authorisation, “resulting in the anomalous scenario where three public hospitals were conceded for operation by third parties without anyone actually assuming responsibility for this decision.”

·        The NAO believes that the ethical safeguards established in the RFP were breached by the secret investors behind VGH through the agreement reached with the government prior to the issue of the RFP. This breach necessitated the disqualification of VGH as a bidder.

·        Although the bid submitted by VGH satisfied all the requirements set by the government, the NAO expressed the opinion that the bid was essentially robust in form but flawed in substance.

·        The Bank of India letter sanctioning funding for the “Malta Healthcare Projects” and put forward by VGH in respect of the bid was dated 13 March 2015 – that is, well before the publication of the RFP on 27 March 2015.

·        The design of the RFP was such that is allowed “considerable interpretation”.  Good practice dictates that the term be determined by allowing a sufficient period for the concessionaire to recover the investment made and register a reasonable profit. “In this case, no such analysis was undertaken, with the term, and its subsequent option to extend, set arbitrarily,” according to the NAO report.

·        The balance of risk remained “drastically skewed against the government, with the concessionaire guaranteed revenue by the government irrespective of market fluctuations and actual use, thereby further reducing the risk allocated to the concessionaire.

·        While VGH was registered in Malta only a few months before the RFP was issued, in terms of financial soundness, the NAO noted that VGH submitted a description of the value of the holding companies cited in its bid, which submission was deemed as not fully addressing the requirements of the RFP.

·        The NAO noted that the business experience cited by the VGH was not attributable to it, but to Oxley Group or its strategic partners, or to partners that the VGH had involved in the project. The experience cited for Oxley Group mainly related to real estate investment trusts and funds, asset management and financing.

·        The timeframes VGH committed to for the redevelopment of St Luke’s Hospital, the Gozo hospital and Karin Grech were overly ambitious and unrealistic.

·        Despite being given an initial concession of 30 years, VGH was “imprudent in assuming that this would be a given and proceed to base its financial strategy on the full 99-year term. Moreover, credit sought for the financing of the project was conditional on the granting of a 99-year lease. The NAO concluded that this extension should not have been considered by any of the bidders as “an obvious and certain outcome.”

·        The evaluation carried out was lacking in terms of critical analysis, with several parts of the evaluation report merely being a restatement of the bid by VGH. The NAO stated that the marks assigned in relation to the technical and operational component of the evaluation were not entirely merited.

·        Scant evidence was provided to the Evaluation Committee on the feasibility of the project.

·        The evidence indicating collusive action between the parties acting on behalf of the government with the investors of VGH rendered the entire process dubious, irrespective of whether the process was in adherence with procedural and regulatory requirements.

The NAO concluded that the shortcomings mentioned highlight the need for more     robust backgrounds and rigorous due diligence.

Read what The Shift revealed about the hospitals’ deal here.

The investigation was supported by journalismfund.eu