The European Commission is questioning the government over some €100 million in tax arrears due to the central government by Enemalta, this newspaper is informed, and the government is scrambling to sell off the Corporation’s petroleum division so as to make good on the missing funds.

In April 2013, just after the general election when the government presented its budget for the rest of that year, it was practically the same budget as that drafted by the previous administration.

But there was one significant difference: Finance Minister Edward Scicluna had claimed that €65 million in taxes on fuel procurement and duties had been accounted for in Tonio Fenech’s budget, but Enemalta had never actually paid the government.

At the time, Prof. Scicluna had reversed the allocation, which resulted in sending the national deficit over the three per cent of gross domestic product threshold, in the process incurring an Excessive Deficit Procedure against Malta.

But, according to sources within the European Commission, the accounts presented to the EC by the government this year showed that the deficit had dropped below the three per cent threshold – and that tax for fuel procurement from Enemalta, amounting to at least over €100 million (€65 million in arrears for 2012 and a comparable amount for 2013), had been inputted as having been paid to the government by Enemalta.

When the Commission learnt of this development, according to our Commission sources, it immediately requested the government to clarify whether the tax had actually been collected by the government or not.

The government is said to have panicked at the request, and told the Commission that although the funds had not yet been deposited into the public coffers, it would do so soon.

Following the exchange between Brussels and the government, it is understood that Prof. Scicluna flew to Azerbaijan, which is involved in the new power station contract, to make an urgent pitch for the sale of Enemalta’s petroleum division for some €100 million.

This has been confirmed by sources who have business interests in Azerbaijan and who were contacted by third parties for first hand information on Enemalta’s state of affairs.

The sales pitch was unsuccessful and it is understood that the government then made a similar pitch with the Chinese state-company investing in Enemalta, but was, again, unsuccessful.

In the meantime, the question remains as to how, exactly, Enemalta will make good on the arrears and how the government intends plugging the hole now that the European Commission is asking some clearly uncomfortable questions about the issue.

Sources within Enemalta prompted with questions by this newspaper revealed that one way the government could extract itself from this fix is by resorting to some ‘creative accounting’ and shifting funds that will be injected by the state-owned Chinese energy company soon after the power purchase agreement is signed in the coming days. However, should government adopt such a strategy, it would be committing the same offence that it had accused its predecessor of.

Sources within Enemalta revealed that the Chinese officials currently conducting a due diligence process at Enemalta showed little amusement at the tariff reductions announced by the government, claiming that it is still early for the company to engage in such reductions when the power-purchase agreement hasn’t even been signed – let alone yielding any fruit from a fixed price for five years. 

This resulted in some friction with the government making it clear that the reduction in tariffs was an electoral pledge that couldn’t be postponed. The fact that the Chinese state-owned company did not take up the offer to purchase the Petroleum Division for the price of €100 million, at a time when the government desperately needs the cash, could be the result of an edgy relationship, according to our sources.

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Finance Ministry's reply:

In a right of reply statement, the Finance Ministry said "It is disappointing to note that the Malta Independent on Sunday has chosen to reiterate malicious and misleading spin by the Nationalist Party, in its front page, that the 3.3% deficit in 2012 resulted from the reversal of Enemalta’s outstanding excise duties.

On the contrary, the accrual system on which the 3.3% deficit is reported by Eurostat is based on the premise that the €65 million have been paid in.

In fact the cash-flow or consolidated accounts report a much higher deficit, higher than 5% of GDP. This data was collected by the NSO from the Treasury. There was no intervention, least of all a reversal, by the Minister.

Furthermore, claims that meetings took place in Azerbaijan involving the Minister for Finance, Prof. Edward Scicluna and the sale of Enemalta’s petroleum division are also blatantly and completely incorrect.

A Press Release (PR140902) issued recently clearly stated that between 23 and 25 April, 2014, the Finance Minister Prof. Edward Scicluna together with the Deputy Governor of the Central Bank of Malta attended a constituency meeting of the European Bank for Reconstruction and Development (EBRD)in Almaty and Astana in Kazakhstan. Professor Scicluna is currently Vice-Chairman of the Board of Governors of the EBRD.”