A consortium building a gas power station has said it has raised all the required funding for the work and that a State guarantee for a bridge loan from Bank of Valletta is only necessary “to avoid any delay” that would result from waiting for EU approval of a security of supply agreement it had entered into with Enemalta.
But what happens if the EU does not approve the security of supply agreement? In all probability, the consortium would stop the project as it will not have “security of supply”, unless it has an alternative plan. The government should have come out explaining the guarantee when it was given rather than after it was divulged by The Sunday Times of Malta.
Official clearance is required as it has yet to be established if the security of supply agreement amounts to State aid or not. Under the agreement, the consortium would be able to have a regular income flow through the supply of power to Enemalta.
The consortium, Electrogas, said the government and the shareholders in the consortium “believe that it is good practice and prudent business to seek EU clearance and are confident that the security of supply agreement will be approved; therefore, until EU clearance is given, all parties agreed to temporary bridge financing”.
However, others have expressed concern at the way the government has agreed to give the guarantee for the bank loan to a private company.
Financial observers hold that it is odd and unprecedented, no matter how financially fluid the consortium members may or may not be. Despite the shareholders’ statement, one report quoted sources saying that the consortium had resorted to the local bank as it had failed to raise the required capital from international institutions.
Even though the government has explained that as part of the bridge financing the shareholders of Electrogas were required to pledge their equity shareholding and, also, issue letters of credit to the bank as a form of guarantee, the Nationalist Party in Opposition is right in calling for full disclosure.
As matters are developing all too frequently, the government is creating huge problems for itself by not being transparent enough, which is ironic because it had made transparency one of its battle-cries at the last election.
The PN argued the guarantee facility had not been mentioned in the request for proposals issued for the building of the power plant. “This means that other competing companies have been disadvantaged by this guarantee because they were not aware that it was possible.”
Other relevant questions put by the PN were: when was the guarantee issued by the government?
What aspect of the project is covered? What are the conditions of the guarantee? Under what circumstances can the guarantee be called in by the bank?
It is not just the PN that is concerned at the way the government has acted over this issue. The Chamber of Commerce, Enterprise and Industry has called on the administration to make a full presentation of the relevant facts as in its view the guarantee is not a straightforward matter. It said: “Further delay in presenting the full details will continue to raise unnecessary yet understandable doubts.”
The project has already had more than its fair share of controversy and the issue over the State guarantee is likely to become more complicated if the EU takes its time to come to a decision.
It is good to learn that the project is now progressing but the government can help clear up the concerns expressed by being more open.