PL proposals: Alice in Wonderland
“Well, I never heard it before, but it sounds uncommon nonsense.” – Lewis Carroll, Alice in Wonderland.
After three years waiting for Labour’s promise to lower water and electricity rates, it all boiled down to a wonderful presentation, an experts’ report that Labour ignored, and a magical figure nobody in his right financial mind can seem to comprehend. But Labour believes it is doable – great consolation.
Based only on a desktop review, that is, from a desk in the Netherlands, by searching the internet, no hint on what assumptions were made, what factors were considered or ignored, and who really came up with the reduction itself, Labour wants to make us believe it is doable.
It was not their consultants’ choice, as Labour opted to ignore their proposal, which actually confirmed what the PN in government has long been saying – that a gas pipeline linked to the present infrastructure makes a far cheaper energy production cost than what Labour have been proposing – and Labour is asking you to believe they will deliver on their promise.
Nobody knows what assumptions have been made in terms of gas prices, operational costs and all it takes to come up with a proper detailed study. All we know is that from what was published we note significant underestimations in the costs of the infrastructure they are proposing, and if you get that wrong then very likely the whole model and premise for the reduction in rates falls flat on its face.
Labour’s presentation greatly understates the capital costs of the infrastructure they are proposing by over €200 million. The new 200MW plant proposed by Labour is estimated at €166 million. In 2009, Bateman had tendered for a smaller 150 MW plant using the same CCGT technology as per Labour’s proposal at €186 million. Realistically a 200 MW plant would cost closer to €240 million, a €76 million shortfall.
Labour has conveniently ignored the fact that the area proposed for the terminal is reclaimed land that will require significant piling of the area before starting to construct the gas storage tanks. This would easily cost another €40 milion.
Labour also conveniently failed to account for the cost related to the acquisition of the dedicated tankers required for such an operation, estimated at around €50 million for every vessel. Two or three dedicated ships may be required to provide the constant and secure supply of gas over the 25-year contract.
Another major flaw in Labour’s plan is the linkage of the promised reduction in tariffs to a power purchase agreement for 10 years. Standard power purchase agreements established by the World Bank do not provide for a price guarantee for 10 years. Such agreements are history because of the fluctuations and rapid increase in gas prices over the past years. If such an agreement were to be reached, such a guarantee will undoubtedly be far more expensive than Labour are claiming as the private operator will rightfully make sure that all his costs are covered and risks are mitigated, unless he wants to go bankrupt half way through the contract and leave us without electricity.
Labour candidate Konrad Mizzi has admitted that the 9c6 generation rate not only fails to cover any return on capital, but fails to account for any investor profit. Labour seems to believe we are all gullible enough to believe that any investor will put his money into a €600 million plant without expecting a viable return.
Unbelievably, Labour also opted to build a new 200MW power station we do not need as we have sufficient generating capacity. They suggest we use the interconnector – which has cost us €200 million – for only 20 per cent of the time, and want to make you believe there is no negative impact of this unrecoverable over-investment in your tariffs.
They justify all this mess in strategy because they claim all this is deliverable in just 24 months. Come off it! Permits, an environmental impact assessment required by EU legislation, maritime studies, Seveso compliance, safety studies due to gas storage tanks, tenders, appeals and a realistic three-year construction timeframe for the largest infrastructure energy project proposed.
Wonderland! They will not even start in two years, let alone be ready, with the whole project only deliverable by the time the interconnector cable is on stream. And still they go against their own consultants’ advice.
Labour’s proposals effectively entail an increase and not a decrease in costs, as the proposals are costlier then indicated, risky, ill-thought and not credible. Labour refuses to publish the details of the studies they claim support this proposal.
The Nationalist Party’s policy is that of ensuring that we can provide families, business and industry with the cheapest possible energy cost as confirmed by Labour’s own presentation, quoting DNV Kema, which shows that the PN’s proposal of a gas pipeline connection with mainland Europe is financially cheaper than Labour’s wrong strategy.
This leads to numerous questions which Labour repeatedly fails to answer. Why is Labour’s preferred option to invest in a power station which we do not need? Why is Labour refusing to quantify all the costs involved in such a project? Why is Labour refusing to confirm whether it will be doing without the necessary transparent processes required in such projects?
And finally, but most importantly: Why is Labour refusing to provide us with the reports which provide the basis of such proposals?
“Off with your head,” said the Queen in Alice in Wonderland; Labour’s proposals would face the same predicament.
Tonio Fenech is Minister of Finance and the Economy.