Updated: No generation capacity worries from Delimara extension delays - minister
Use of additional Marsa units would cost €3.6m per month
Finance Minister Tonio Fenech said in parliament this evening that Malta can meet its winter electricity demand even without the Delimara power station extension, which has been switched off because of damage to its turbine.
Delivering a statement to the House, Mr Fenech said winter demand was 330 megawatts, with the highest peak being 368 megawatts. Delimara I (the first phase of the Delimara power station) could generate 300 megawatts while the two boilers and gas turbine currently in use at Marsa power station could generate 157 megawatts. This meant that anticipated demand could be met without the need to reactivate the four boilers at Marsa which were switched off when the testing of the Delimara extension started. Still, these boilers could be switched on in an emergency. Their use would cost Enemalta an additional €3.6m per month.
In his statement, Mr Fenech said the Delimara power station extension had been built to high European environmental and efficiency standards and used low sulphur fuel oil. It was equipped with special filters and other equipment to ensure that emissions were not any higher than using gasoline.
During the reliability run, emission abatement levels were found to be high.
The plant was composed of eight diesel engines and a steam turbine which used the steam generated by the diesel engines.
Last week's damage was caused when equipment installed ahead of the turbine was sucked in, causing substantial damage.
The damage was completely BWSC's responsibility since Enemalta had not taken over the plant.
The first indication of damage was on October 7 when a stop valve did not close as it was supposed to. Between October 11 and 12 BWSC dismantled the equipment and found part of a filter in the valve. At the time Enemalta sought initial legal advice.
On October 12 damage was found to the turbine's inlet blades but the extent of the damage was not yet known. Enemalta sought more legal advice.
The steam turbine was eventually sent to the manufacturer in the UK by BWSC.
Mr Fenech said the government never sought to hide anything, but Enemalta first needed to know all the facts and establish its legal position. On October 16 Enemalta issued a statement of the facts as were known up to then. More details were given at a press conference on Saturday.
The government was being firm and would not defend any contractor, Mr Fnech said.
Enemalta would enforce the €1.6m penalty per week laid down in the contract if the plant was not delivered on time by November 7, and it would seek compensation for all other damages, including the costs associated with reactivating units of Marsa power station.
Mr Fenech stressed that the damage was not caused in the innovative parts of the power station extension, but to a turbine in the combined cycle, the same as used by the rest of the power station in Delimara.
The damage took place when the mechanism had not been handed to Enemalta and was the responsibility of BWSC.
He explained that Enemalta could have opted to take over all the power station extension, except the turbine, but it refused because in so doing it would not have been able to perform a whole-unit analysis. Taking the partial hand-over option would also have required Enemalta to pay 90% of the last instalment and it could have lost the right to demand payment of penalties for the non-delivery of the plant, since penalties would have been reduced to the portion which had not been taken over.
Mr Fenech said the hand-over would be followed by a year-long period where BWSC would be required to conduct all repairs for faults which cropped up. BWSC would also be responsible for latent defects.
Replying to points raised in the media, the minister said the white dust seen in a number of photos as not harmful and was the result of an emissions fault which was quickly rectified, without problem.
Concluding, Mr Fenech said winter power demand was 330 megawatt with the highest peak being 368 megawatt. Delimara I (the first part of the Delimara power station) could generate 300 megawatt while the two boilers and gas turbine currently in use at Marsa power station generated 157 megawatt. This meant that anticipated demand could be met without the need to reactivate the four boilers at Marsa which were switched off when the testing of the Delimara extension started. Still these boilers could be switched on in an emergency.
Opposition leader Joseph Muscat noted that only €8 million remained to be paid by Enemalta to BWSC, while the demanded damages would be €32 million.
He noted that the prime minister yesterday said that the BWSC had admitted responsibility and would pay damages, yet that was not what Mr Fenech had said in his statement. Which was the correct version?
He also asked whether it was true that litigation would have to take place before the UK courts, not the Maltese.
Other questions were asked by, among others, Anglu Farrugia, Franco Debono, Charles Mangion, Marlene Farrugia, David Agius and Joe Mizzi.
Mr Mizzi noted that on September 26 the minister said that abatement problems had been solved. Yet his information was that the problems had not been solved yet.
Apart from the turbine, the plant had also suffered serious problems in its engines and exhaust systems. Was it normal to replace the cylinder head of a new engine or that other cylinder heads were leaking? There was also damage to engine eight.
Then on October 15, the serious damage to the steam turbine was detected but the government stayed quiet until he revealed some of the problems in parliament on October 16.
In his replies, Mr Fenech said the prime minister had declared a state of fact. BWSC was not contesting responsibility for what had happened. Nor could it, once the plant hand not been handed over. Contractually, Delimara II currently did not belong to Enemalta but to BWSC. That would only happen after the handing-over.
BWSC had accepted responsibility, dismantled the turbine and shipped it to the UK for repairs. It was not known when it would be brought back. It could take between three and six months.
The issue was of the damages suffered by Malta beyond the delay penalties of €1.6m in damages per week, particularly if additional boilers had to be switched on in Marsa, incurring higher fuel costs and greater emissions.
Opposition leader Joseph Muscat asked how much these additional damages could be, since Dr Gonzi had given the impression that BWSC had agreed to pay for those damages too.
Replying, Mr Fenech said no claims had been made yet. One would expect an element of contestation, but there was no contest on the delay penalties since those were laid down in the contract and kick off on November 7.
Reacting to comments in the press by Prof Edward Mallia, Mr Fenech said it was true that the diesel engines could be switched on and would produce electricity without the need for the turbine, at 42percent efficiency instead of 47, but taking over those diesel engines would mean a reduction of the penalties to €160,000 from €1.6m. In this case, the issue was legal, not technical. However there was nothing to stop BWSC to opt to operate the diesel engines themselves to mitigate the damages.
Mr Fenech insisted that the €1.6m penalties per week were only for the delays and not for the additional costs incurred as a result of the delays.
He said the penalties were limited to €24 million after which the government could opt to reject the whole plant - with BWSC required to refund the whole cost and dismantle everything.
Dr Muscat said that meant 15 weeks, meaning the penalty could be exhausted without the power station being on stream.
Mr Fenech said one would then either negotiate or reject the plant, with the serious consequences on BWSC.
Dr Muscat noted that the minister had said the commissioning could be put off by six months...
Mr Fenech said it could be sooner. The six months was a preliminary estimate. The turbine had not reached the UK factory yet and had not been opened.
Enemalta still had to pay BWSC €8m on contract and furthermore, there was a performance guarantee of 15%, or €16m, meaning that the government already currently held €24m. It could also file an insurance claim.
As for the additional costs per month if the other Marsa units were to be switched on - including fuel costs and emission penalties - these would reach €3.6m per month, according to preliminary estimates. However those units might not need to be switched on.
Should matters go to litigation, the case would be held at the London arbitration tribunal using Maltese law.
As for the dust found after an abatement mechanism leak, Mr Fenech said that consisted almost totally of sodium bicarbonate, the same substance as baking power, and it was not considered dangerous. No lab tests were made and the health and safety authority was not involved. This problem had not been recurred and was considered minor.
On the causes of the turbine incident, Mr Fenech said the turbine had worked well. The damage was caused by a dislodged filter and it was not clear if it had been wrongly installed or it had some defect which caused it to dislodge itself, damaging the valve and then the turbine.
Even if the plant had been handed over, all the equipment was guaranteed for a year and would have been repaired by BWSC, but BWSC would not have been liable for the delay penalties. Even after the guarantee year was up, BWSC would have been required to affect repairs if the damage was caused by a latent defect.
Replying to Mr Mizzi's claims on faults in the engines, Mr Fenech said the aim of testing was to unveil such defects and rectify them and that was had happened. There was nothing unusual in that.
On energy security worries, Mr Fenech reiterated that the plant currently in use in Delimara and Marsa was enough to cover the winter peak. In case of emergency, one could switch on the Marsa boilers which are currently off, but not decommissioned, and if there was yet another emergency, one could even sit down with BWSC and switch on the Delimara II diesel engines if necessary. Therefore there was no alarm.