Gas more expensive than interconnector – Electrogas advisers
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Gas more expensive than interconnector – Electrogas advisers

Consultants worried about Enemalta noticing high prices, leaked report reveals

Gas is proving to be an expensive option for Enemalta. Photo: Chris Sant Fournier

Gas is proving to be an expensive option for Enemalta. Photo: Chris Sant Fournier

A leaked 2017 report drawn up for Electrogas raised concerns that Enemalta might seek to renegotiate contract terms once it noticed the “extra costs” of buying gas at the five-year fixed price.

“The concern is that Enemalta would have direct evidence of the extra costs incurred by buying LNG at a high price in today’s market,” Poten – Electrogas’s energy consultants – wrote in the report.

Since the price was fixed in April 2015, gas prices have crashed.

It emerged last month, in a Daphne Project expert analysis of the leaked contracts with Electrogas, that Malta paid close to double the market price in 2017.

And, according to calculations made by The Guardian, the situation resulted in an estimated profit of $40 million to Azerbaijan’s State-owned company Socar, which sells LNG supplies to Electrogas.

Socar disputes the $40 million figure.

Interconnector ran at full capacity, despite risk of a trip and island-wide blackout

In addition to having to buy gas at the fixed price of €9.4 per unit, the contracts, steered through by former energy minister Konrad Mizzi, also bound Enemalta to buying a minimum of €131.6 million worth of gas per year.

The contract terms, which were kept hidden from the public, state that if Enemalta fails to consume this amount of gas, it still has to pay Electrogas the full amount.

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Poten said in its report that if these take or pay requirements did not exist, it would make more financial sense for Enemalta to use the interconnector, rather than running the D3 and new Electrogas power plants.

The energy consultants told Electrogas that recent history showed how Enemalta would maximise its electricity purchases from the Italian electricity market while prices were low.

They said the interconnector had run at almost full capacity for the first nine months of 2016, despite the potential risk of a trip, which could result in an island-wide blackout.

Poten calculated that the cost of generation of both the D3 and Electrogas plants, excluding fixed costs, would be approximately €72/MWh.

This would be more expensive than the €58/MWh average cost of electricity via the interconnector in 2015, the Electrogas consultants said.

Poten said the average cost of buying from the interconnector from January 2016 to September 2016 was €46/MWh.

Were Enemalta not obliged to buy gas from Electrogas, the economic incentive for the State-owned company would be to use the interconnector, the consultants said.

In a statement in April the government continued to defend the deal, giving no indication efforts were under way to renegotiate.

Read: Electrogas says its IT systems may have been breached

Questions were also raised last month by The Malta Independent about whether the State-owned energy billing company, ARMS, was overcharging consumers.

The Sunday Times of Malta reported how, according to the Consumers’ Association, people were being cheated out of lower tariffs on water and electricity due to the way the unit cost was calculated.

ARMS has denied the claims, saying that the way bills are calculated has not been changed since the current system was introduced in 2009.

The only changes to utility bills during the last 10 years were the changes in tariffs, with an upward revision in 2010 of 30 per cent and a 25 per cent reduction in 2014 and 2015 for residential and non-residential customers, respectively, ARMS said in a statement on Sunday.

MINISTRY'S REACTION

In a reaction, the Energy Ministry claimed that the Times of Malta  report focused on an analysis of historic spot prices and forecasts, without taking into consideration the facts verified by Eurostat and several credit rating agencies in the last few years.

These omissions, it ssaid, include the fact that Maltese families have been enjoying some of the cheapest tariffs in Europe for three years, and that after decades of losses and rising debts, Enemalta is now back on its feet, generating enough income to adequately invest in continuous service level improvements and electricity infrastructure upgrades.

"Any serious analysis of the national energy sector cannot consider the wholesale spot prices of electricity or electricity generation fuel in isolation. Such an analysis would take Malta back to times when electricity tariffs kept constantly increasing, to the detriment of the Maltese economy, whilst Enemalta rapidly increased its losses and debts, with unpaid loans dating back decades," it said.

"Through the long-term transformational plan implemented by Enemalta plc during the last few years, the company is no longer a financial burden on the economy. It is instead a profitable one providing Maltese families and businesses with affordable, stable tariffs, whilst investing in a multi-million network programme to constantly augment the quality and reliability of its services.

"The government’s long-term plan for the energy sector meant the introduction of a new energy mix which did not only rid Malta of the costly, and polluting, oil-fired power plants, but also ended its over-reliance on large single sources. The only alternative proposed by previous administrations was to retain the old HFO-plants at Marsa and Marsaxlokk, whilst increasing tariffs to make up for Enemalta’s losses."

Malta today has a diversified energy mix based on efficient, cost-effective technologies, including new gas-fired plants, the Malta-Italy interconnector and grid-connected renewable energy sources. This mix has drastically increased security of supply, reducing the risks of widespread power cuts associated with single-source configurations. It has also led to unprecedented air quality improvements, particularly in the southern part of Malta, which was previously tormented with the toxic HFO emissions. 

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