Hospitals agreement with VGH vitiated by ‘trade secrets and death threats’

Current and former Cabinet members, including the prime minister himself, are busy washing their hands of any knowledge of the contentious €100 million hospitals’ concession escape clause given to Steward Health Care in 2019.

That pay-out clause was, however, already four years old at the time and had been in the original 2015 concession deal with Steward’s predecessor, Vitals Global Healthcare (VGH).

In fact, when VGH director Ram Tumuluri attempted to bring up the issue during talks when he claims he was coerced into handing the concession over to Steward, he says his former right-hand man who moved to Steward, Armin Ernst, used trade secrets to “assist in the Government of Malta’s circumvention of the €100 million termination penalty.”

The 2019 agreement broadened the pay-out clause to include €36 million in loan facilities through Bank of Valletta for Steward to build the Barts Medical School in Gozo.

It also included an extension of the €100 million termination of concession penalty, awarded in the event of a government default on its obligations, to the possibility of a court decision to revoke the concession.

In February, the courts ruled the entire agreement to have been fraudulent from the outset and rescinded the concession and all associated agreements, including that related to the €100 million clause.

The original 2015 concession agreement was published by Tumuluri in his whistleblower disclosure to the US Securities and Exchange Commission under the Foreign Corrupt Practices Act.

The disclosure was obtained by the Organised Crime and Corruption Reporting Project and shared with The Shift and The Times of Malta, which published extracts of its contents on Wednesday following a joint investigation.

In the disclosure, Tumuluri claims he was threatened repeatedly by former OPM chief of staff Schembri and others that he would meet the same end as journalist Daphne Caruana Galizia if he didn’t sign the hospitals’ concession over to Steward.

At one pivotal meeting at the Office of the Prime Minister, Tumuluri recounts in his affidavit to the US SEC how he brought up the €100 million side agreement VGH signed with former minister Konrad Mizzi.

Tumuluri says he reminded Schembri at the time, “Vitals Malta was not in default of its obligations and that the Concession provided for a €100 million termination penalty against GOM [Government of Malta] if GOM defaulted on its obligations”.

‘I am the law in Malta’ – Schembri

According to Tumuluri’s sworn statement, Schembri replied, “‘[He] is the law in Malta’, that no agreement could protect Mr Tumuluri’s interests.

“He stated that if GOM [Government of Malta] could silence a vocal reporter like Ms [Daphne] Caruana Galizia, Mr Tumuluri should be very careful not to make enemies with GOM.”

In his filing, Tumuluri accuses the government and Armin Ernst, who at different times wore both VGH and Steward hats, of conspiring with government officials to ensure he could not claim the €100 million payout.

Tumuluri accuses Ernst of “unlawfully and without authorisation” giving his trade secrets to Steward.

Tumuluri claims that, in violation of the concession’s confidentiality and non-disclosure provisions, Ernst disclosed confidential information to Steward.

This included inside knowledge of differences of opinion between Tumuluri and the government on policy, management and administration.

That information, Tumuluri says, was leveraged against him during talks in which he says he was forced to hand the concession over to Steward.

He elaborates in his filing, “Steward then conspired to use this confidential information to strengthen their negotiating position with GOM to acquire Vitals Malta, to obtain the concession, and to strip Mr Tumuluri of his interest in that valuable agreement.

“Indeed, almost immediately after acquiring Vitals Malta and the Concession, Steward, Steward International, Steward Malta implemented various measures that had been the topic of confidential discussions, debate, and disagreement between Mr Tumuluri and GOM.”

Tumuluri says that was all done in violation of obligations under the non-disclosure agreement.

“Steward, Steward International, Steward Malta, [Ralph] de la Torre, and [Armin] Ernst used the confidential information regarding Mr Tumuluri’s Health PPP business model to negotiate and reach agreements with the governments of other countries.”

These included agreements with Croatia, Montenegro and Macedonia.

Both Ernst and Schembri deny the allegations.

The original €100 million side letter

That €100 million original escape clause that the 2019 cabinet says it knew nothing about had been clearly stipulated in the 2015 agreement with Vitals.

The agreement was signed by the energy and health ministry, then represented by Konrad Mizzi, and three Vitals companies on 30 November 2015. The concession contract says it had been duly authorised during Cabinet Meeting 102.

The agreement provided for the payment of both the lenders’ debt and a €100 million payout for Vitals in the event of a discretionary contract termination or termination in the event of a government default.

It also provided for the same payout should the concession be terminated because of a change in the law.

The original concession agreement also provided for the payment of only the lenders’ debt if the concession was terminated over a default by the concessionaire, force majeure or a national emergency.

In August 2019, Mizzi brought an updated document to cabinet that broadened what would constitute a government non-rectifiable event of default if a court rescinded the concession agreement.

The courts, in fact, annulled the concession and the €100 million side agreement in February. Steward is currently appealing the ruling.

Mizzi’s former Cabinet colleagues argue he had not disclosed the broadening of the agreement and believed they were there to approve a guarantee for new loan facilities for Steward – of €5,000,000, €3,000,000 and €27,900,000 – to build the Gozo Barts Medical School.

Tumuluri says he had been threatened on multiple occasions, over and above what was reported this week by The Shift as part of an international investigation, to waive the €100 million clause and to sell out to Steward.

He says, for example, that one of the original hospitals’ investors, Shaukat Ali, told Tumuluri “on multiple occasions that GOM would harm Mr Tumuluri’s family, if necessary, to ensure that Mr Tumuluri complied with the sale of Bluestone’s shares in Vitals Malta to Steward.”

Specifically, Tumuluri says Shaukat Ali told him on multiple occasions that he “need[ed] to look after [his] family,” and that he did not “want [Mr. Tumuluri’s] family to get hurt.”

Tumuluri says he was also told that if he appeared at Vitals Malta’s annual Christmas Party, police officers would arrest him in front of the 200 attendees.

“In another instance, in or about December 2017, Tumuluri’s assistant financial controller was detained for questioning by unidentified Maltese officials, who compelled him to release proprietary financial information about Vitals Malta.”

Later, on 25 January 2018, Schembri allegedly told this same employee over the phone, with Steward’s lawyers on the line, that he would be deported if he did not turn over the bank key.

Tumuluri says he ultimately handed over the concession because he feared his life and his family would be in danger if he didn’t.