BWSC plant’s profits raise questions over Shanghai deal

Nationalist MP and former finance minister Tonio Fenech has suggested that Enemalta will have likely paid Shanghai Electric, the Chinese owners of the ‘BWSC plant’, €486 million over the next 18 years, in what seem to be fees for the lease back of the power station to the State-owned energy provider.

Fenech, who as minister oversaw the establishment of a special purpose vehicle for the restructuring of Enemalta’s debt in 2012, was asked for his analysis of D3 Power Generation’s financials for 2015.

In 2014, Chinese state-owned company Shanghai Electric paid €150 million for the 90% stake in the BWSC plant (Delimara Phase 3), while Enemalta retained a 10% stake.

During 2015, D3 registered €27 million in revenue, which Fenech noted came with no production costs being deducted from this revenue. “This means that this is some sort of rent, that is after acquiring the plant from Enemalta for €132 million,” said Fenech. 

He said that in his view, this implies that Enemalta is leasing back the BWSC plant from Shanghai Electric at a rate of €27 million annually.

“Indeed, the government had announced in 2015 that before the plant is converted to gas, Enemalta will remain operating the BWSC plant while paying Shanghai Electric for its use,” he explained.

“In operating the plant, Enemalta is not only incurring the rental charge but also all the costs of operations directly, including fuel, labour costs and maintenance. This has been a very good deal for Shanghai Electric.”

Fenech argued that had Enemalta taken out a loan at an interest rate of 6% – a conservative estimate, he claimed – annual repayments would have been in the region of €27 million, and the government would have paid off the BWSC plant within six years.

“This means that in those 18 years, for an original investment of €133 million, Shanghai Electric will have made €486 million, 2.65 times the original amount,” Fenech said. “This is a very good deal for them and a very bad deal for the Maltese, as it means our utility bills will have to collect these monies.”

The original investment of €133 million is listed under ‘tangible assets’ in the financials.

NWSC financials for the year 2015

Fenech acknowledged caution in his analysis however, since not all details have been published. “It could be the case that rent will be paid only during the initial years until the plant is converted to gas, with Enemalta only paying for energy bought from D3 beyond that point.”

“It is not very clear what has really been agreed with Shanghai Electric. The government is claiming that they have no agreement on the BWSC that obliges them to buy all the energy produced, contrary to the agreement with ElectroGas, which has this condition,” he said. 

Fenech explained that from his experience, contracts such as the one in question generally have “two revenue streams”: revenue generated from the sale of electricity units, and a charge for the availability of an asset – in this case the power plant – when it is not in use. “From what I’ve seen from a power purchase agreement of this sort, the rental cost would be added to the electricity rate. If you do not acquire sufficient energy to recover the rental charge however, then a fee must be paid for the time the asset is being kept idle but available.”

According to Fenech, this would be a very costly charge that will effectively guarantee that the entire €27 million is paid through a combination of an amount that is recovered through the sale of electricity and the charge for the availability of the asset, since Shanghai Electric cannot sell their energy to anyone else. 

Financial estimates from Budget 2017 show €14 million being earmarked under ‘Provision of Spare Capacity – Electricity.’

“The government is planning to pay €14 million for this availability. The new power plant being built by ElectroGas is not yet in operation and therefore it is logical to deduce that this money is intended for whoever is operating the BWSC plant, i.e D3 Generation Limited,” said Fenech.  

Questions sent to minister without portfolio Konrad Mizzi, who retains responsibility for energy matters, remained unanswered by the time of going to print.