Former Enemalta chairman Charles Mangion insists the Energy Minister never ordered him to conclude a deal with Azeri oil company Socar.
He said the name Socar cropped up during a telephone conversation with the minister over Enemalta’s difficulty in finding fuel sellers ready to give the company the price it was asking for.
“I cannot recall whether it was he [Konrad Mizzi] or I who brought Socar up in the conversation but it centred on whether they would be interested in giving us the price Enemalta was requesting,” Dr Mangion said when contacted yesterday.
Dr Mangion, now a Labour MP, also revealed that Socar was reluctant to conclude unless the government guaranteed it would be paid if Enemalta reneged on its financial commitments.
The Socar deal to hedge petrol and diesel to Enemalta for the second half of 2014 came under the spotlight after the National Audit Office found insufficient documentation to justify the agreement struck. In its probe on Enemalta’s fuel hedging strategy for 2013 and 2014, the NAO said the Socar agreement was “concluded following ministerial direction”.
However, Dr Mangion insisted the minister’s involvement was limited to giving the go-ahead for Enemalta to talk to the Azeri State oil company.
“I emphatically insist that Konrad Mizzi never ordered me or Enemalta or even suggested we conclude a deal with any company. The agreement between us [Dr Mizzi and Dr Mangion] was for Enemalta to explore the option and contact Socar,” Dr Mangion said.
He said officials of both companies went back and forth on the price of petrol and diesel as determined by Enemalta’s advisory and finance committee.
“The agreement gave us a reduction of 2c in the price of fuel. Socar questioned Enemalta’s finances and we brought the Finance Ministry into the loop to issue a guarantee for some €10 million, which was normal practice throughout Enemalta’s history.”
Asked why he felt the need to inform the minister about Enemalta’s difficulty sourcing its fuel, Dr Mangion said it was “an obligation”, given the government was the company’s sole shareholder.
The 2c reduction was announced by the Prime Minister and Dr Mizzi at a press conference in the courtyard of Auberge de Castille in April 2014, a month before the MEP elections.
But Dr Mangion said the elections were never part of the conversation he had with Dr Mizzi. “The election was never brought up, since our only interest was to ensure fuel prices remained stable or reduced as per the government’s publicly declared policy.”
The government has come under fire because its strategy to hedge fuel prices meant motorists were paying a much higher price for petrol and diesel compared to their counterparts in the EU when oil prices started sliding last September. The agreement with Socar and the accompanying hedge covered Enemalta’s petrol and diesel requirements for the last six months of last year.
Dr Mangion defended the hedging agreement, saying it was based on the policy to seek price stability.
“With hindsight, everybody is wiser but the outlook at the time [March and April, when the Socar agreement was reached] was that oil prices would continue to rise... it was our policy to keep prices the same or cheaper.”
The NAO did acknowledge the difficulty in forecasting the sudden drop in the price of oil in September and the following months.
The main loss registered by Enemalta with respect to hedging was “the significant market movements recorded during Q4 2014, which were not and could not have been anticipated when such agreements were entered into”, the NAO said.
The extent of the loss was mitigated by gains in the foreign exchange hedge but, ultimately, despite a 2c reduction, Maltese motorists were faced with among the highest pump prices in Europe as Christmas and the new year approached.
The matter has been the subject of political controversy, with the Nationalist Party insisting that the hedging agreements prevented motorists from benefiting from lower fuel prices.
But for former Enemalta chairman Robert Ghirlando the controversy over hedging is unwarranted because it all depends on what the government wants to achieve.
Citing an example of a hotel that had all its rooms booked by a travel agent for the whole year, Prof. Ghirlando said the hotelier could opt to hedge his fuel price to achieve certainty that the agreed profit margin would not be influenced by market fluctuations.
“If the hedge goes bad, the hotelier may rue the additional profit he could have made with lower fuel costs but buying at spot prices may also mean higher fuel costs if the price shoots up.
“It is the government’s stated policy to go for stable prices and hedging gives you just that. Obviously, hedging comes with its risks but so does spot buying. If the decision is to opt for stability it is useless crying over spilt milk when the hedge gives bad results.”