The government is ready to take on the €450 million burden of building a new power station if the EU does not green-light the security of supply agreement with the private consortium ElectroGas, Finance Minister Edward Scicluna said during a press briefing this week.
The security of supply agreement is the main deal clincher for the ElectroGas consortium.
The consortium will fund the building of the power station in exchange for an 18-year monopoly on gas provision.
The consortium is made up of Siemens, Socar of Azerbaijan and GEM, a group of Maltese investors from the Gasan and Tumas business groups. The financially ailing Gasol pulled out of the consortium last month.
Explaining how Gasol’s precarious finances had been overlooked during the due diligence process, Professor Scicluna and Energy Minister Konrad Mizzi said during a press briefing that the government had initially assessed the financial strength of the consortium as a whole, with Siemens and Socars’s financial strength putting the government at ease.
The government announced that a deal was signed last month offering a temporary 22-month €450 million bridge loan to the ElectroGas consortium.
The government is guaranteeing €360 million of this loan on behalf of ElectroGas, on the strength of the security of supply agreement which has yet to be approved by the European Commission.
The “temporary” €360 million loan guarantee was required in order for the project to continue moving ahead pending this approval.
The remaining 90 million is being guaranteed by the consortium, which has also paid the government €8.8 million to make good for the favourable interest rates brought about by the government guarantee.
Professor Scicluna said that although a “phenomenal figure” is required up front as is the norm in capital projects, the benefits of the new power station will be felt over a number of years.
The bridge loan will be funded equally by four banks, BOV, KFW IPEX-Bank, HSBC and Societe Generale.
Professor Scicluna said he is optimistic that the European Commission will approve the agreement, but if it does not the government is willing to fully takeover the project as it is a good infrastructural investment for the country.
Energy Minister Konrad Mizzi said at a press conference yesterday that the “draft” security of supply agreement has not even been signed with the ElectroGas consortium yet, pending the European Commission’s approval.
Dr Mizzi said the government was advised from day one to seek approval from the European Commission about the security of supply agreement, instead of going ahead and signing it.
The Ministers made it clear that the cost of the project is being borne by the private sector and not the taxpayer, and the loan guarantee does not involve any money being forced out by the government.
The Energy Minister said there “might be some tweaks” put forward by the European Commission to the security of supply agreement.
Asked if such tweaks have to be approved by the ElectroGas consortium, Dr Mizzi said adamantly that it is the Maltese government that has to be content with the final agreement.
Contacted by The Malta Independent, a spokesperson for the European Commission said “The Commission is in contact with Maltese authorities on this project, in particular as regards its compliance with EU State aid rules. The Commission's assessment is ongoing and it has not yet taken a formal position.”
Apart from the risk of the European Commission not approving the agreement in its current guise, an equally great risk is ElectroGas refusing to sign the security of supply agreement if the Commission goes too far with its “tweaks.”
One possible redline for the consortium is a reduction in the 18-year period in which it will enjoy a monopoly in gas supply.
This too would likely trigger the need for the government to take over the project and fund the €450 million build itself. The Malta Independent tried to contact ElectroGas on numerous occasions yesterday for comment, but to no avail.