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Political controversy did not affect American University of Malta due diligence process

Martin Scicluna: “This was going to be an absolutely independent due diligence on educational and financial grounds.” Photo: Matthew Mirabelli

Martin Scicluna: “This was going to be an absolutely independent due diligence on educational and financial grounds.” Photo: Matthew Mirabelli

Political controversy has surrounded the proposal for an American University of Malta in Marsascala and Cospicua. But Martin Scicluna, head of the National Commission for Further and Higher Education, tells Kurt Sansone this did not impinge on the due diligence process that determined whether AUM should be offered a university licence.

You spoke of “a totally independent decision” reached by your board, while at the same time acknowledging the “political aspect was hovering over us”. Can anybody believe you did not succumb to political pressure?

I’ve got to try and persuade you on this. Of course we were all very conscious of the political imperative placed on the government to come up with a favourable decision on the university. But I can assure you that the board and I were absolutely determined that our independence, which is written into the law, would be totally adhered to. That, for us, was the bottom line and it was reflected at every level. This was going to be an absolutely independent due diligence on educational and financial grounds.

Was it salutary to the process that government entered into a land transfer agreement with Sadeen before the evaluation had taken place?

It was not helpful to what we wanted to do. In an ideal world, as somebody on the Opposition side said, we would have done our assessment, made our recommendations to the government and the government would have then announced its decision. But politics isn’t always like that. We have to deal with the world as it is. The Prime Minister came back from Jordan thinking he had a good deal and announced it. My board had not started its work to assess the viability and conduct a due diligence of the operation. Life is often like that in politics. But that did not in any way affect the independent approach we were determined to follow and indeed which we were encouraged to follow.

You described this as “the most rigorous educational and financial due process, with no lowering of standards in any way, shape or form”. How was this application different from any other the commission has had to deal with?

It was different in one key respect. This was a start-up operation. We had an applicant who was starting a university from scratch with no background. All applications we have dealt with so far, such as Barts and Middlesex University, involved courses that we knew and institutions that had a record over many years. We knew what their financial state was, what the audits were saying about them and they had a reputation. But with Sadeen, we had to start from scratch, and you could see that from the time it took us to complete the process; it lasted 14 months. The process was rigorous and thorough.

Am I right to get the impression that Sadeen may have initially thought it could breeze through this process? At one point, there was a three-month hiatus, until they responded to the further clarifications you had requested.

I don’t know what the state of mind of Sadeen was, but they certainly had to undergo a steep learning curve. This was an area in which they had never been involved, and I suspect it took a long time for the penny to drop. They were dealing here with a serious organisation determined to maintain Malta’s high standards of educational and financial due diligence. I suspect, without putting words in their mouths, they did not realise this was the situation. But once the penny dropped, they started producing the right answers and all the right evidence on which we could base our decision.

The ball is really in their court, and they can opt not to take the licence

When the project was first announced, the proponents used the agreement with De Paule University as a benchmark for their courses. It transpires that Sadeen later on also roped in Clemson University. Why was that necessary?

De Paule was instrumental in designing the courses and doing all the faculty and curricula sides of things, whereas Clemson was brought in on the quality assurance side to ensure there was a reputable university carrying the new university along for at least the first five years of their licence once they got started. So that was a turning point. It was also linked with their finding of a very good provost, equivalent to our rector, Prof. [John] Ryder.

The commission has offered AUM a university licence, subject to a number of conditions. What happens next?

We have offered a licence conditional upon their agreement to about 16 fairly rigorous conditions. If they do not accept those conditions, they won’t get a licence.

This is non-negotiable. This is the board’s independent decision, and that is what they have to comply with. If they choose not to, the ball is really in their court, and they can opt not to take the licence.

What happens at that stage; would they revert to being an institute rather than a university?

No, I think they would not have a licence and would not carry on with the project. I suspect that would be their decision.

Is there a timeline according to which you are expecting a reply?

From their point of view, the sooner they make that decision, the better it will be, because the sooner they can start to recruit students. Bear in mind they are keen to start the whole process in September this year, so they need to get their students in – the first 100 – and build up the whole business from September, so the onus is totally on them.

You spoke of a steep learning curve for AUM. Was it in the commission’s remit to hand-hold or guide the applicants on how to change their application so it would meet the necessary requirements?

The whole process which we undertake is one of an exchange of conditions and advice, but the onus is always on the applicant to produce what is required. We have to navigate him through technical and educational hoops. But it is an iterative process that goes back and forth.

During the heated political exchanges that accompanied this proposal, it was noted that the Malta Financial Services Authority carried out due diligence of the Sadeen Group. Why did the commission feel the need to conduct a different one?

The due diligence they had done did not meet the requirements of our law under the Education Act for a financial due diligence of the business plan and probity checks of people running the organisation. So while it was adequate, I suspect, for what the government wanted to do when it drew up a land transfer contract, for my board it was not adequate.

The financial conditions the board has imposed seem to be quite onerous for Sadeen. Has the commission gone too far?

No. Here we have an applicant who has drawn up a business plan on the basis of his own figures. He knows what is required to build this university and then to run it, and he has to show that he has the financial means to support that business plan. That is why many of the financial due diligence conditions are included in the list of conditions.

At one stage the commission fined Sadeen, because it was using the descriptor ‘university’ when it was still undergoing the licencing process. What bearing did that have on the evaluation process?

Inevitably, we had to be looking at these people and asking whether we could trust them. Were they able to deliver if they were given a licence? The incident was a question of advertising and the fine was an element of that. In fairness, they paid the fine in the space of time allowed at law. For my purposes it was a closed chapter: they had a fine and they paid it.

You mention trust as a key factor. This was not just a question of ticking the boxes. What won your trust?

I think in the end it was the experts’ advice, from the educational due diligence side, the quality assurance committee and the expert panel, which showed that all the criteria needed to meet the educational standards were going to be met. Secondly, there was also the advice from the financial experts, the leading audit firm PricewaterhouseCoopers. Subject to Sadeen’s compliance with a number of conditions that came out from the due diligence, we felt we could trust their judgement to produce a decent university in the next few years.

Apart from the audit process Clemson would be carrying out as part of its association with Sadeen, the commission said it would also carry out its own spot checks and external audits. Does the commission have the capacity to carry out such reviews?

Yes it does. It is a central part of its role. We have already carried out such audits on MCAST, the University of Malta and the Institute of Tourism Studies. We will do another four or five audits this year. We will carry out the audits as outlined in the conditions attached to the granting of the licence.

Do you believe Sadeen will deliver the university they have promised?

I think if they fulfil the conditions we have laid down, and the onus is on them to do that, then they will. That is why we have laid down such rigorous conditions, because that is a standard we expect of the people to whom we give a licence to run a university in Malta. And may I say, other universities also have similar conditions. They do not come in with a clean slate, and my people will spot the areas where improvement is needed and lay down conditions.

Apart from the environmental controversies, which the commission did not have to enter into, such as the use of land, there was a major concern about the viability of what Sadeen was proposing. Some feared they would fold up after some years and the campus would end up changing into luxury apartments, defeating the original scope of the project. Was this something the commission gave weight to?

I t inevitably was part of the conditions we laid down, because we were dealing with a start-up university and they’ve got to prove themselves over the next two, three, four years. Conditions come in a graduated timeline, from spot checks that start straight away to annual reports from Clemson.

It will be quite an intense process, which we will be watching, to ensure that the deal Malta is striking will be a viable deal and will not turn into the sort of thing you are talking about.

Sadeen have given their word they would like to see students recruited for this coming September. The Cospicua campus will not be ready by then. One of the conditions is to have a planning permit for all campuses. The caveat is that they can use alternative premises until permits are out. Have Sadeen indicated which premises they will use in the meantime?

Not yet, but they will tell us where they are going to rent, and we have to make sure the building is fit for purpose for students according to our requirements. That is when they will get their licence. They will have to clear that with my people.

You gave a thorough explanation of the timeline involved and the process followed, but you also mentioned the names of the people involved in the evaluation committees. This is quite unprecedented for authorities in Malta. Why did you feel the need to go down this route?

I and the board felt it incumbent upon us to be transparent about this decision, which we knew would be a difficult one politically. It was incumbent on us to show that the quality of people who are doing this was high, they were not afraid of being named and we were all taking responsibility and being accountable for this decision. I personally think this is an example that any other regulatory authorities might care to ponder and perhaps follow. A lot of the arguments being made about good governance are due to a sense of guardedness about the decisions we make when a really open government has the ability to shine a searchlight on something like this and show that all due processes have been followed step by step.

Would you reject any notion that your commission went through all this process with a done deal at the back of its head and Sadeen had to get a licence at all costs?

I utterly reject that and I must put on record that both the Prime Minister and the Education Minister did not apply any pressure to any of us to come up with a particular answer. We were allowed to get on and do this objectively, transparently and without any outside influence.

The government took on a lot of political risk, having entered into an agreement with Sadeen over the land transfer [when the educational due diligence still had to be done], apart from the political commitment it made.

You are quite right, but sometimes governments do that and they then have to bear the consequences if they get it wrong. Look at what happened to [British Prime Minister] David Cameron.

Conditions linked to the university licence

These are excerpts from some of the 16 conditions that the Sadeen Group has to accept before it is given a licence to operate an American University of Malta.

Works underway at Dock One, to be the Cospicua campus of the American University of Malta.Works underway at Dock One, to be the Cospicua campus of the American University of Malta.

• Clemson University of South Carolina is to undertake a yearly audit as part of AUM’s internal quality assurance process from the start of operations. Condition in force for five years, with a possible extension.

• The National Commission for Further and Higher Education, the regulatory body, will conduct spot checks at least once a year. Condition in force for five years, with a possible extension.

• Commission will conduct external quality audits of AUM after the second and fourth academic year. These will cover academic, administrative and service operations. Commission will decide on frequency of further audits.

• Applicant has to show evidence that they have put in the equity amount of tens of millions of euros [the amount was redacted from the public statement because of commercial sensitivity], to be invested in the first two years.

• Any funding shortfall from that agreed in the business plan will have to be financed by additional equity by the applicant.

• Any future change in the shareholding structure (more than 10 per cent) of AUM’s corporate entities will need prior approval of the commission.

• Commission has to be given access to the financial statements of all companies in the Sadeen Group, or other firms in which the applicant is a significant shareholder, that provide debt or equity financing for the project.

• AUM cannot operate from the Dock One campus in Cospicua before the commission receives the compliance certificate from the Planning Authority.

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