EU investigating state aid for Delimara power station

The European Commission said today that it has opened an in-depth investigation under EU state aid rules into Maltese plans to grant €15.5 million aid to the Delimara Power Station to support the modification of boilers at the power station.

Such aid would reduce the investment costs of meeting the existing environmental standards applicable to large combustion plants across the EU.

"At this stage, the Commission has doubts whether the investment subsidy is necessary and well designed to perform a service of general economic interest, as is argued by the Maltese authorities," the Commission said.

The opening of an in-depth investigation allows the Maltese authorities to present further arguments on this file and also gives interested third parties the possibility to submit comments on the proposed measures. It does not prejudge the outcome of the procedure.

Commission Vice-president in charge of competition policy Joaquin Alumina said: "At this stage I have doubts the investment aid is compatible with our EU single market state aid rules as Malta would thus subsidise the environmental standard costs which other electricity producers in the EU must meet on their own".

Under the plan notified to the Commission, Malta plans to support the modification of boilers 1 and 2 at the Delimara power station, which is owned and operated by State-owned Enemalta.The total cost of the project is estimated €18.3 million. The Maltese authorities plan to finance €15.5 million (i.e. 84.7%) from regional funds put at its disposal by the EU. The remainder €2.8 million would be financed by a commercial loan with a government guarantee at market prices. The project is expected to be completed by 2014.

The Commission explained that the project will enable Malta to meet its obligations to reduce nitrogen oxide (NOx) and dust emissions under the Large Combustion Plants (LCP) Directive 2001/80/EC and the Integrated Pollution Prevention and Control (IPPC) Directive 2008/1/EC, which requires the application of the best available technologies for large plants. Both directives will be replaced by the recast Industrial Emissions Directive, adopted by Parliament and Council on 8 November 2010. Malta has derogation until 31.12.2019 to meet the emissions limits set in the new directive. In the meantime, it must abide by the requirements set in the LCP and IPPC legal texts that seek to guarantee environment protection in the EU.

Enemalta, the Commission pointed out, is at present the sole operator licensed to distribute electricity in Malta and it also holds a near monopoly for electricity generation in the country. The situation is expected to change by 2012, when an interconnector with Sicily, partly funded by the EU, should be in operation.

Electricity trade should thus become possible from and to Malta. In that context, a public subsidy to meet already applicable environmental standards that competitors in Italy and elsewhere in the EU must meet is liable to distort competition between Enemalta and such suppliers. EU environmental aid rules allow for such subsidies, however to much lower proportions than envisaged by Malta, only if companies reduce pollution further than what EU law requires.

This is the case when the aid encourages companies to anticipate future applicable standards or to go beyond their legal obligations. The Commission does not find, at this stage, that the plans of Malta comply with these rules on aid to environmental investment.

Malta also alleges that the investment would extend the useful life of the boilers and serve to provide back-up capacity in case of supply disruptions.

However, some of the investments considered seemed destined exclusively to reducing harmful dust emissions up to the requisite level, not to extend the life of the boilers. Moreover, the planned electricity interconnector with Sicily should also considerably increase the future capacity of supply in Malta.

Finally, at this stage and pending the observations of Malta, the Commission said that it cannot come to the conclusion that the planned investment subsidy is a compensation for the performance a service of general economic interest in line with EU rules.