THE CURACAO MEDICAL CENTER (HOSPITAL) IS TECHNICALLY BANKRUPT?

     

THE CURACAO MEDICAL CENTER  (CMC) IS UNDER FINANCIAL STRESS & DURESS?

By: JJosephaNews
Reading Time:  9:00 mins.
Twitter: @JJosephaNews

Willemstad, Curacao. April 7th, 2022. According to the Curacao Medical Center director: Mr. Gilbert Martina, the hospital is technically bankrupt. The hospital opened it doors on November 15th 2019 at a cost of over half a Billion Guilders and now a short 29 months later, management is practically declaring bankruptcy. The hospital was built by a consortium led by Ballast Nedam, to a design by Oeverzaadjer-Lyongo architects in collaboration with EGM architects.

Key Points:

• Curacao's Healthcare is in Danger?
• How Much Longer Can Curacao's Hospital CMC Stay Financially Afloat?
• CMC's Past Money Trouble

 

THE HEALTHCARE IS IN DANGER?

During an interview, Mr. Martina declared: “Practically you could say that the hospital is technically bankrupt, because it can not comply with all its creditors. Our largest creditor is on real estate (property) (vastgoed), which must get the rent, so that they can do the maintenance part. They need to do the preventive maintenance and the corrective maintenance, also, they need to do the necessary reserves, so that, from here to ten (10) years, there is enough reserve, enough money in their bank account, so that, the changes in the medical devices can be made. Which after, seven (7) to twelve (12) years, you must change them (medical devices). And the largest debt, is the one in property, because, as I explained, every month you have a deficit between 4 to 5 million, and if you can not comply with your obligations, it come to a moment where this will make the healthcare (the healthcare hospital provide) be in danger as well, where we won't be able to guarantee the intensive care. So, the decision of the court report, will be very important in this case. We hope that a change will come, it is regrettable, that these type of measurement needed to be used (the hospital filed a lawsuit against the government), to get something that, if you look at all the numbers, you will see that the care that you gave is much more compare to the money that you receive.”

TRANSLATION: [Felicity: 10% - Fidelity: 90% ]

 

FOR HOW LONG CAN THE HOSPITAL SURVIVE?

Martina went further: “Looking at the current situation, if a change does not happen, I believe a maximum of 2 to 3 months, because the transfer that we have from the local loan is also ending, and you don't want to use it because every guilder that you use, you must pay 5% more on top of it!”

TRANSLATION: [Felicity: 10% - Fidelity: 90% ]

AN INTRODUCTION TO CURACAO MEDICAL CENTER (CMC) HISTORY

From a report at the Court of Audit of Curacao (CAC) (in Dutch: Algemene Rekenkamer Curacao), we can read the following on the hospital (now HNO Transitie en Exploitatie N.V. or CMC Exploitatie #146265): “On August 11, 2011, a management agreement regarding the development and realization of a hospital for the Land was signed between the public legal entity Land and SONA (Stichting Ontwikkeling Nederlandse Antillen = Netherlands Antilles Development Foundation). The goal was the realization of a new sustainable operational hospital for the country, whereby SONA was commissioned to realize this goal. In 2018, the so-called HNO (Nos Hospital Nobo = Our New Hospital) entities HNO Holding, HNO TE and HNO VB were established. In the same year, SONA transferred the tasks related to the transition to HNO TE, as agreed with the Land. From mid-2019, the other tasks (particularly regarding construction) have been transferred to HNO VB.

At the start of the project in 2011, the hospital was referred to as NHN. Since the location change to Otrobanda in September 2013, the hospital has been designated HNO (Hospital Nobo Otrobanda). The official name of the hospital is now CMC. The hospital is also referred to as CMC/HNO. 

TRANSLATION: [Felicity: 10% - Fidelity: 90% ]

 

CMC PAST MONEY TROUBLE

In the 2020 Court of Audit of Curacao report we also take note of the following:

In a letter dated 15 May 2018, Curacao's Parliament asked the Curacao Court of Audit (CAC) to investigate the CMC project. In view of the major social and financial impact on society, CAC had already started an investigation and was therefore able to immediately comply with Parliament's request.

In the NHN period, a total of NAf. 23.2 million was budgeted and spent. The Country had budgeted sufficient resources on the regular service to cover the expenditure on SONA in the preparatory phase of the project. When providing financial resources to SONA in the NHN period, the Country remained within the budget set by Parliament, including supplementary budgets.

For the HNO period from 2013 to 2019, the Country has allocated NAf. 532.6 million expenditure for the project. These expenses can be divided into three categories, namely financial resources to SONA to implement the project (NAf. 387.7 million), advances to the HNO entities (NAf. 64.1 million) and other project-related expenditure (NAf. . 80.8 million). Approximately 50% of this expenditure (NAf. 267.4 million) was initially not covered by the amounts budgeted for it in the budgets adopted by the Parliament, including the supplementary budgets. In order to cover these impending budget overruns, a total amount of NAf. 142.2 million budget amendments pursuant to Article 47 paragraph 3 of the Lv C-2010 have taken place and for a total amount of NAf. 95.4 million budget amendments pursuant to Article 46 paragraph 1. The latter means that the amendments to the budgets have been included in the relevant annual accounts and will be adopted when these annual accounts are adopted by Parliament. The remaining amount of NAf. 29.8 million is not covered and the corresponding annual accounts also show this deficit on the relevant budget item.

The following figure shows for each category of expenditure referred to above to what extent the expenditure was budgeted or covered by budget amendments pursuant to Article 47 paragraph 3 and Article 46 paragraph 1 or remained uncovered.

To pay the advances of NAf. 64.1 million to cover the HNO entities are mainly resources on the capital service, intended for CDI (Curacao Development Institute), released (NAf. 4.6 million) and the proceeds from the sale of UTS (United Telecommunication Services) (NAf. 52.3 million). At the beginning of January 2020, an advance of NAf is made of the latter amount. 12.75 million refunded. The advances are included excluding this amount in the budget and expenditure in the draft annual accounts for 2019.

In all cases of a budget amendment pursuant to Article 47 paragraph 3, the intention to amend the budget as prescribed is first approved by the RvM (Raad van Ministers van Curacao = Curacao Council of Ministers). However, the prescribed presentation of a draft national ordinance in this regard to the Governor, so that the amendments can also be presented to Parliament afterwards, did not take place. As a result, Parliament will only be confronted with these changes when the annual accounts to be adopted are discussed.

The Court of Audit has concluded that Parliament's right to budget has been eroded and insufficiently recognized:

1. Expenditure that was already known to take place was initially not budgeted through the normal rules, ie in the original budget to be determined by Parliament. In principle, budget changes during the year should be made as much as possible by means of supplementary budgets. Three fixed moments2 have been established for this in the law. Only if these three moments have already taken place, and an urgent need arises in between or afterwards, it is possible to derogate under Article 47. Also in the event of amendment of the budget by adopting the annual accounts by national ordinance, it must be prevented as much as possible that new budget amendments are included that should have been made earlier during the service year. In 2017, 2018 and 2019, for example, the budget was initially nil for the project, while it was known that NAf respectively. 70.4 million, NAf. 71 million and NAf. 19.6 million to SONA had to be transferred.

2. For none of the budget amendments pursuant to Article 47 paragraph 3, total NAf. 142.2 million, the legal procedure was followed, as a result of which the States were not informed in advance. The States are therefore only confronted with these changes afterwards and are thus faced with a fait accompli.

3. There are expenses for NAf. 29.8 million without this expenditure being covered by a budget.

NHN Period:

SONA has drawn up the final settlement for the project until December 1, 2020. In the final settlement, no distinction is made between expenditure in the NHN and HNO period. Because different project budget agreements applied for both periods, the Court of Audit did make this distinction.

SONA has NAf. 23.2 million received from the Country and on balance NAf. 22.6 million spent.

The majority of SONA's expenditure concerns payments to the implementing organization BINT (Berenschot International B.V.). During this period, the board of SONA itself has not incurred any costs in connection with the Management Agreement and the Management Agreement. The country had not yet agreed a budget with SONA during the NHN period because the project was still in the preparatory phase and not all parts had already been worked out.

SONA stayed within budget in spending during the NHN period. This is mainly because no concrete budget had yet been allocated.

In the final statement that SONA has provided to the Court of Audit in the context of adversarial procedure, no distinction is made between NHN and HNO expenditure. It is recommended to make this distinction in order to promote insight.

HNO Period:

The country has a project budget of NAf. 421.8 million agreed with SONA. In 2016, the Country has NAf. 14 million earmarked for another purpose. This left a budget of NAf. 407.8 million.

Project expenditures have been made by SONA, HNO TE and HNO VB. Accountability must be made for these expenditures.

In the period 2013-2019, the Land has paid a total amount of NAf to SONA directly to SONA as well as directly to creditors of SONA for the benefit of HNO. 400.7 million provided.

SONA has accounted for the project expenditure in these years in its accounts for receipts and expenditure for the years 2013 to 2018. These accounts have been checked by the SOAB (Stichting Overheids Accountants Bureau = Foundation Government Accountants Bureau). SONA has now also drawn up the report for 2019, which is also checked by the SOAB. In addition, SONA has recently drawn up the final account with explanatory notes in which the project expenditures up to December 1, 2020 are divided into budgeted and non-budgeted expenditure. The final settlement was audited on 3 December 2020 by an external auditor. In the final settlement SONA has for NAf. 294.4 million in budgeted expenditure accounted for and NAf. 106.3 million in unbudgeted expenses.

Translated by Josefina Josepha:

	Issued by SONA	Promised budget	Remaining budget
Budgeted Expenses	294,4	407,8	113,4
Expenses not budgeted	106,3	0	-106,3
Total	400,7	407,8	7,1

Of the non-budgeted expenditure of NAf. 106.3 million has NAf. 18.7 million related to expenditure by HNO TE for which SONA made the payments in 2018 and 2019. HNO must account for these expenditures. So, on balance, SONA's budget is NAf. exceeded 87.6 million. This exceedance is explained below.

Translated by Josefina Josepha:

Statement of budget overruns SONA (NAf. in millions)
1	Delays in project execution
	Claims by BNI for late delivery of building sites because SEHOS was not able to clear the buildings thereon in time (SEHOS sliding plan) and they could therefore not be demolished in time.	33,1
	Management and consultancy costs Construction and Furnishing due to the longer deployment of consultants due to the delays incurred	14,7
	Support to SEHOS in the implementation of the sliding plan	7,1
		54,9	63%
2	No exemption from import duties and sales tax, which was assumed in the first instance	14,2	16%
3	SONA 2016-2020 management costs because the management was carried out ourselves	10,6	12%
4	Miscellaneous	7,9	9%
	Total	87,6	100%

The unbudgeted expenditure was financed by SONA with the resources that were actually intended for budgeted items.

SONA has in 2018 for an amount of NAf. 73.7 million in budgeted and unbudgeted obligations administratively transferred to HNO TE. This amount is largely the difference between the allocated budget and SONA's budgeted expenditure. HNO TE will therefore at least have to account for these expenditures and for any other project expenditures. The aforementioned amount of NAf. 18.7 million, which SONA paid on behalf of HNO TE, is part of the amount of NAf. 73.7 million.

SONA has awarded HNO VB in 2019 for an amount of NAf. 53 million in budgeted and unbudgeted obligations have been administratively transferred, including the construction interest of NAf due to the Land. 15.1 million. The amount of NAf. 53 million is largely the difference between the allocated budget and the budgeted expenditure of SONA. HNO VB will therefore at least have to account for these expenditures and for any other project expenditures. HNO TE and HNO VB declared in June 2019 that they unconditionally vouch for SONA's project creditors, including in particular the transferred obligations. Because part of the budget allocated to SONA was used by SONA to cover unbudgeted expenses, the HNO entities would finance the obligations and other expenses transferred to them from a proposed loan of NAf. 200 million.

SONA and HNO VB have NAf. 20.2 million recovered from BNI (Ballast Nedam International), which claim now formally belongs to HNO VB. The latter will therefore have to settle this financially with the Country.

The costs that HNO will still have for this project will only partly depend on obligations of which HNO has taken over the payment obligation ('transferred' by SONA). As has rightly been pointed out by SONA, the ultimate costs at the HNO entities will be the actual performance of third parties that has yet to become payable. As a result, the ultimate exhaustion of the budgets initially estimated under SONA can deviate considerably.

The Court of Audit initially submitted the request for financial statements of the HNO entities to the Minister of GMN (Ministerie Gezondheid Milieu en Natuur = Ministry of Health, Environment and Nature). No response was received. The Court of Audit has also asked the HNO entities and the Minister of Finance whether there are any agreements regarding the reporting of financial statements to the Country, the audit of the financial statements and the settlement of the advances that the Country has provided to the HNO entities. . No response was received from the Minister of Finance. The HNO entities have responded.

On the question of whether agreements have been made with the Country regarding the provision of financial accounts/progress reports on the HNO project, HNO Holding referred to the respective Ministries of the Country on 2 October for the reason why these agreements were not made. The foundation also noted that its sole function is to hold shares for the so-called first phase of the HNO project. According to the foundation, it was never the intention of the foundation to prepare progress reports when setting up the temporary structure. It has therefore not prepared any financial progress reports/reports relating to the HNO project for the period up to and including the year 2020. The foundation has further noted that it prepares annual financial reports for the Board and the Supervisory Board of the foundation. and has not explicitly stated that it will provide these annual reports to the Country.

In their separate responses on September 29, HNO TE and HNO VB did not state whether they have agreements with the Country to provide financial statements/progress reports, nor whether they intend to or have already done so in the case of progress reports.

HNO Holding has also noted that for the final adoption of its annual financial reports for the years 2018 and 2019, it is dependent on the final adoption of the annual accounts of HNO TE and HNO VB. The latter could not yet come to this conclusion because they still had to receive the necessary information and documentation from SONA. HNO TE and HNO VB also cited the lack of data aside from SONA, which must be incorporated in their annual figures, as a point in their aforementioned responses on September 29. Upon inquiry, SONA informed the Court of Audit on 8 October that it informed the Minister of GMN in August 2020 that SONA is under no obligation to transfer (part of) its administration to the HNO entities. SONA also proposed a practical solution. According to SONA, no response has been received from the Minister of GMM. SONA further noted that it is unable to place the Court's question as an administrator/accountant from HNO VB has been at SONA in the meantime, who has consulted with SONA's administration.

HNO Holding has informed the Court of Audit about the audit of the financial statements that it already has agreements on this with an audit firm. HNO TE and HNO VB have not made any statement about this.

HNO TE has explicitly stated in its response that it will not comply with the Court of Audit's request for information, as it does not fall under the scope of the Lv ARC (Landsverordening Algemene Rekenkamer Curacao = National Ordinance Court of Audit Curacao). HNO VB has indicated that it is currently undecided whether it falls under the scope of the Lv ARC. HNO TE also noted that, once its annual figures have been established, it is in principle willing to provide information from them on a voluntary basis, to be further agreed with the Court of Auditors. HNO VB is also willing, on a voluntary basis, to agree with the Court of Audit, after its annual figures, which of the requested information is available and can be provided, and in what form. HNO Holding has not explicitly stated whether it will provide these documents to the Court of Audit in due course.

Of the aforementioned amount of NAf. 64.1 million, concerns NAf. 5.4 million in advance to HNO Holding. According to HNO Holding, no specific agreements have been made with the Land regarding the repayment of the advance of NAf provided to it. 5.4 million and there have been no refunds in this regard. It is also stated that the receipt of the amount has been administratively processed in the current account ratio between HNO VB and HNO Holding. This would have to do with the fact that HNO VB has issued a IOU (I Owe You) from the Group of HNO Entities to the Country regarding the funds made available by the latter for the HNO project, including the aforementioned amount. HNO TE and HNO VB did not answer the Court of Audit's question whether agreements had been made with the Land regarding the settlement of the advances provided.

As stated earlier, the Court of Audit has not received a response to its questions from either the Minister of GMN or the Minister of Finance. In its response in the context of the official hearing of both sides, the Ministry of Finance indicated that it had given its minister various advice to regulate the relationship with the HNO entities.

Before the establishment of the HNO entities, SBTNO (Stichting Bureau toezicht en normering overheidsentiteiten = Foundation Bureau for Supervision and Standardization of Government Entities) advised the Land to set up HNO TE and HNO VB itself, and not by HNO Holding, in order to prevent the latter from being the direct and sole shareholder of these companies. By setting up HNO TE and HNO VB themselves, the rights and interests of the Country would be better safeguarded. Even after the incorporation, a legal adviser advised the Country to make concrete agreements with HNO Holding about the presentation of financial statements and to agree on deadlines in this regard, so that the Country would not have any insight into the expenditure. It can be deduced from a response from HNO Holding that the advice was not followed. It also appears that this Holding is temporary.

In addition to the financial statements not yet being ready, various aspects surrounding the HNO project have not yet been worked out or partially completed. According to the Ministry of Finance, this is partly due to a lack of information and partly due to a lack of decision-making. These aspects mainly have to do with the role of the HNO entities. It concerns discussion about whether or not they belong to the collective sector, the allocation and processing of the additional costs HNO, to what extent the repayment of the advances to the HNO entities will take place via an additional HNO loan or in another way. Also, the interests of the Country, in the event of a possible alienation of the hospital building complex and/or of the shares in the HNO entities, are not yet sufficiently safeguarded.

Finally, it should be noted that in the context of administrative hearings, neither the Minister of GMN nor the Minister of Finance has received a response.

The Court of Audit concludes that on the part of SONA, the project budget on the basis of the final settlement has been exceeded by NAf. 87.6 million due to unbudgeted expenditure. This is largely due to the delays during the implementation of the project and the invalidity of the previously granted exemption from import duties and OB.

It is further concluded that HNO TE and HNO VB respectively have a minimum of NAf. 73.7 million and NAf. 53 million in project expenditures to account for. Only when the final amount of project expenditure of these bodies is known and final settlement with these entities can a statement be made about the total budget overrun of the project.

Since there is only a direct relationship between the Land and HNO Holding, in its capacity as a foundation established by the Land, the future role of the Land vis-à-vis HNO TE and HNO VB is unclear. HNO Holding has noted that it has only a temporary role in the chosen structure. It is therefore not guaranteed that financial accountability will be rendered to the Land about the settlement and that the latter can conduct an investigation into this through its supervisory bodies. There is a risk that the Country will not be able to enforce this accountability either, since it is not the Country but HNO Holding that is the direct and sole shareholder of the companies.

There are various aspects surrounding the HNO entities that still need to be fleshed out. For example, an allocation of the additional costs of the project expenditure still needs to be made.

Finally, it is concluded that the lack of access to all relevant information and the still lack of necessary decision-making in this final phase of the project, makes it unclear what the ultimate financial impact of this project will be for the budget of the Country. It has become clear that at this stage the interests of the Country are not yet sufficiently safeguarded.

The following recommendations are made to the States:

1. the ministers of GMN and Finance ask for clarity about the financial justification of expenditure by the HNO entities, including the actual amount of the project costs and the financing of these costs;

2. ask the ministers of GMN and Finance whether the interests of the Country, in the event of a possible alienation of the hospital building complex and/or the shares in the HNO entities, are sufficiently safeguarded in the meantime and, if so, how;

3. to ask the Minister of GMN to make the results of the audit of the accounts for the NHN period (2011-2015) and the HNO period up to and including 2018 available to Parliament;

4. to ask the Minister of GMN to make the audited final statement of SONA available to Parliament;

5. to ask the Minister of GMN to make SONA's account of the project expenditure in 2019 available to Parliament as soon as it has been audited;

6. to ask the Minister of GMN to inform Parliament when the final statement can be expected by the HNO entities and to also ask the Minister to make this final statement and associated audit results available to Parliament as soon as they have been drawn up;

7. to ask the ministers of GMN and Finance to change the governance structure of the HNO entities in such a way that the recommendations of SBTNO are complied with or to explain why these recommendations have not been complied with;

8. make clear agreements with the entities on the provision of financial transparency and accountability;

9. When allocating and allocating the (additional) expenditure to the project, also take into account the project expenditure in the NHN period, as these are not part of the HNO period, but are part of the hospital project.

TRANSLATION: [Felicity: 10% - Fidelity: 90% ]

You can also read:

IS HOSPITAL NOBO OTROBANDA CURACAO'S CASH COW TO GET MORE MONEY AND LOANS TO COVER-UP THE DEFICIT?

ADOPTION OF A NATIONAL DECREE FOR THE HOSPITAL NOBO OTROBANDA LOAN IMPORTANT FOR CURACAO 

CAC 2019 REPORT

CAC 2021 REPORT

OVERALL TRANSLATION: FELICITY:10% / FIDELITY:90%

PAPIAMENTU/DUTCH : ENGLISH

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