As the energy landscape heads for a major overhaul with the introduction of private sector involvement, Kurt Sansone unravels the complexities.

Sparks are expected to fly in Parliament tomorrow when the Energy Minister gives a breakdown of how the government’s energy plan will unfold.

Konrad Mizzi is expected to give details of meetings he had with Shanghai Electric, the prospective strategic partner for Enemalta, in China last week.

But he will also have to explain how the government is expected to finance the cut in utility tariffs for businesses next year after admitting the gas power station project will miss the March deadline.

The Opposition requested a debate on government’s energy plan after the public acknowledgment that the power station will not be ready as promised.

Controversy is likely to characterise the debate as the Opposition claim the plan is an expensive exercise that may yet hurt taxpayers despite the investment being made by the private sector.

Only the Electrogas agreeement has been signed so far but details are sketchy since the government has not published it

Will Enemalta stop being a government company?

No. The government will still hold a controlling stake but Chinese State-owned company Shanghai Electric Power will be roped in as a strategic partner with a third of the shareholding and the right to appoint a deputy chairman.

Will Enemalta stop generating electricity?

The company will still have the ability to generate some 150MW of electricity at Delimara from two plants that will be retained. However, it is likely these will be used as standby units. This means Enemalta will purchase electricity from third parties. The company will retain ownership of the distribution grid.

Wasn’t Delimara supposed to be closed down?

The commitment was to close down the Delimara 1 plant and remove the large chimney. But Enemalta will retain ownership of Delimara 2 and 3 that can run on diesel, a cleaner fuel than heavy fuel oil but much more expensive.

From where will Enemalta buy its electricity?

Electricity will be bought from: Electrogas, which will build the new gas-fired plant; Shanghai Electric that will own the BWSC plant at Delimara and the European grid through the interconnector with Sicily. The company has already entered into an 18-year agreement with Electrogas to buy all the electricity produced by it.

Does Enemalta have to buy electricity from the Chinese-run BWSC plant?

The government originally said it would not be obliged to do so but sources have reported the Chinese were insisting on a similar agreement as the one entered into with Electrogas to make their investment worthwhile.

Will Enemalta be buying more electricity than it needs?

This is possibility the case if Enemalta is also obliged to buy the electricity produced by BWSC. Enemalta figures for 2012 show that at its peak in August, the maximum demand for electricity was 429MW and at its lowest, 286MW in May. The new Electrogas plant and the BWSC will have a joint generating capacity of 349MW. This means that for most of the year the joint capacity should suffice but there will be instances when it will be much more than what is required. In this equation there is also the 200MW interconnector to Sicily, which is likely to be used very sparingly to buy electricity from the European grid. However, the same connection could be used to sell excess electricity generated in Malta.

With Enemalta having invested €200 million in the interconnector, does it still make sense to build the gas plant?

This question took particular significance after the government admitted that tariff cuts for businesses next year were not dependent on the gas plant being completed in March when this had formed part of the original plan. But it is also being asked because of the excess electricity that will be generated and which potentially Enemalta will have to buy.

The justification to continue with the Electrogas power station is twofold. The agreement is intrinsically tied to the development of a liquefied natural gas terminal, which is the only plausible short-term solution to shift generation to the cleaner natural gas – the government was elected on a commitment to shift to gas. The other justification is of a strategic nature.

While some argue the interconnector investment would go to waste if it is used sparingly others insist it makes no strategic sense to depend for the daily requirements on a subsea cable linked to Sicily that has its own network problems.

What do we know about the agreements reached so far?

Only the Electrogas agreement has been signed so far but details are sketchy since the government has not published it. We know Enemalta entered into an 18-year power purchase agreement with a fixed price for electricity for the first five years. The agreement with Shanghai Electric has not yet been signed.

Why is the Chinese deal important for the country’s finances?

Enemalta’s massive debts are guaranteed by the government and this was a potential time-bomb. The company also owed the government some €150 million in excise taxes that it collected but did not pass on. The Chinese equity injection in Enemalta will help finance the dues to the government and the whole arrangement that includes hiving off the BWSC plant to a separate company run by Shanghai Electric will half the debt burden. The plan was welcomed by credit rating agencies as long as the deal is sealed.

Why was the petroleum division sold?

This move was always on the cards and never part of the Chinese deal. Enemalta sold the division, which was the only profitable section, to a new government company for €80 million. Enemalta will use the cash to partially settle its dues related to excise taxes since this was causing the Finance Minister problems with the deficit. The new company took a loan from Bank of Valletta to finance this deal but with the government planning to eventually privatise the petroleum division this may be recouped over time.

Why have the signing of the agreement with Shanghai Electric and the construction of the gas power station been delayed?

Although the Electrogas and Shanghai arrangements are separate the two companies will be interfacing with each other and Enemalta. Shanghai will be expected to convert the BWSC plant to run on gas and this will have to be bought from the liquefied natural gas terminal Electrogas will build. According to the Prime Minister the talks are of a technical nature but sources insist that part of the delay concerns the financial aspect that Shanghai are interested in as a result of their investment in Enemalta and more importantly the purchase of the BWSC plant.