The bitter pill

The news that the deficit in state finances has exceeded projections by €71 million follows on from that other news that importers of pharmaceuticals are agitating for payment from the Treasury for supplies made to the Department of Health. The postman hasn’t been bringing many of those A5 white window-envelopes stamped ‘It-Tezor’, containing long-overdue cheques, and the people who supplied the goods without being paid for them, in some cases more than a year ago, are justifiably irate.

People who have scant knowledge of how this business works don’t understand the full extent of the problem. They think that the importers are bouncing off the walls merely because they want the money they’re owed (which is reason enough, and everyone can see that). But it goes way beyond that. The problems created by delayed payments, for importers who work in this line of business, go way beyond cash-flow disruption. The Maltese importation company buys against invoice the goods which it then sells on to the Department of Health. The standard payment terms are 30 days, and those are not payment terms a la Maltija. In other words, you have to meet them or you’re in serious trouble. Because the manufacturers are aware that there is a problem with Treasury payments in Malta, they allow the Maltese company extended payment terms, but these are never more than 90 days.

So the Maltese distribution company must pay within a maximum of 90 days for the pharmaceuticals it buys to sell on to the Health Department. Then it collects its money 12 to 18 months later and counting. What this means, effectively, is that the Maltese companies are financing the operations of the Health Department, and that the government has been using the deferred payment technique as an interest-free loan from these companies, instead of borrowing money at interest from the banks to pay what it owes.

Because the Maltese distribution companies cannot do the same with the manufacturers from whom they buy, some of them end up borrowing at interest from their banks to pay what they owe their suppliers, pending collection of payment from the Treasury. If they don’t pay up on time, they risk the loss of their official representation and the curtailment of further supplies. These companies also distribute to the private sector – pharmacies – so they cannot risk having their supplies suspended pending settlement of invoices for goods which they have bought to sell on to the Department of Health. They have to pay for the goods which they sold to the Health Department, even if the Treasury hasn’t paid for them, to ensure continuity of supplies for pharmacies.

So you might ask: why do they do it? Why do these companies keep trying to win tenders for the supply of pharmaceuticals to the Department of Health when they know it will be months or years before they see their money, during which time they will be financing things themselves? Again, it all boils down to the fact that the Department of Health is the main customer for pharmaceuticals, even if it is the worst payer. And again, it’s all about the risk of loss of official representation. If the Department of Health issues a call for tenders for the supply of pharmaceutical X, and the Maltese distribution company does not compete for it, the pharmaceutical conglomerate which it represents, and which manufactures the product, will react with the withdrawal of official representation. Basically, the Maltese distribution company is there to sell its principal’s products wherever and whenever possible, and the principal – the pharmaceutical manufacturer – doesn’t give a flying monkey’s cuss whether there are payment problems with the Treasury. It wants to sell, and the Maltese company is there to do the selling. So it has to compete for tenders or it’s dumped.

You can see that for the Maltese companies it’s a kind of Catch-22. They have to compete for tenders in the full knowledge that they will be doing the banks’ job and financing the Department of Health (but at no interest) or they will lose their official representation of the big names. The government knows this, which is why it is probably as sceptical about their threat to stop supplies as I am – but of course, to take advantage of this state of affairs is just plain abusive. The Maltese distributors cannot stop supplies without the full backing of the pharmaceutical giants they represent, and that backing is unlikely to be forthcoming. The pharmaceutical giants do not think in terms of problems and obstacles which reduce sales, but in terms of solutions which increase them.

You might ask whether the distribution companies are not pushing their luck by threatening the government with curtailment of supplies. Can’t the government cut them out of the equation and go straight to the source? After all, they are merely the middlemen, buying from Peter to sell to Paul at a mark-up of between three and five per cent. But that’s not how it works. The government is restricted in how it buys. Whenever the Department of Health needs supplies of pharmaceuticals, medical equipment or surgical products, it must issue an EU-wide call for tenders with clearly delineated parameters and specifications. Suppliers then make their offer, and these offers are assessed and decided upon by a tender adjudication board.

What this means is that the decision to cut out the middleman must come from the manufacturer because it cannot come from the government. If the manufacturer wishes to cut out the middleman – the distribution company in Malta – it can do so by tendering directly in its own name. Sometimes, this happens. It doesn’t happen more often because, and here you must have guessed it already, the pharmaceutical giants will sell only to those who pay 30, 60 and in rare negotiated instances 90 days from date of invoice. So it will sell to the distribution company in Malta, which then sells on to the Department of Health, rather than selling to the Department of Health directly. It can force timely payment from the distribution company, but it cannot force timely payment from the Maltese government.

Magic Kiosk

Some people have a ruddy nerve. All those of us who grew up in Sliema in the 1970s know exactly how the Bonello family lost its landmark traditional wooden kiosk in St Anne’s Square and how Joseph Pace got the lease instead. The government of the day being what it was, I don’t think the grown-ups were shocked. They had come to expect that kind of thing from the regime operated by Dom Mintoff, Lorry Sant and Patrick Holland, and worse things had happened already. When you have just experienced the seizing of a private bank, with considerable fall-out and terrible consequences, you don’t do more than sigh briefly when the same thing happens to the owner of a small kiosk.

Now that same Joseph Pace, whose aesthetically-challenged Magic Kiosk has obstructed St Anne Square for more than 30 years, claims that he is being discriminated against for his political beliefs – because the government is kicking him and his horrible aquamarine aquarium out of the square for good. The square was leased in two parts; that’s something else I remember, the original Magic Kiosk having been much smaller than the present one. One of the leases expired in 2004, and the government woke up in 2006 and informed Pace that it would not be renewed, just as it was not planning to renew the other lease, which expired last week. Pace probably harrumphed at that and counted on a Labour victory last March. Now he has filed a judicial protest saying that he is being discriminated against because of his ‘political beliefs’. I just had to put those two words in inverted commas.

Well, that’s a laugh and a half. Perhaps he’d care to explain in great detail how and why he got that lease in the first place? Not that I need the explanation, of course – but others might.