ElectroGas defends Delimara project over suggestions of ‘unusual’ SOCAR gas procurements

Maltese consortium supplying LNG to Delimara plant says project has been highly scrutinised by European Commission

Former energy minister Konrad Mizzi (centre) presides over the financial closure of the gas power project he had piloted in the previous legislature
Former energy minister Konrad Mizzi (centre) presides over the financial closure of the gas power project he had piloted in the previous legislature

The ElectroGas consortium has insisted its activities were conducted with the “utmost transparency, professionality and legitimacy” in a reaction to media reports suggesting it had acquired liquefied natural gas at higher prices.

The consortium includes Azerbaijani state energy company SOCAR, which operates a trading hub in Geneva, which is whoever acquiring the LNG for the Delimara power plant from Shell.

Reports in the UK newspaper The Guardian suggest that when the ElectroGas LNG deal was struck in 2015, benchmarking for the year indicates Malta paid a significantly higher rate than similar gas purchases by Greece, Italy and Turkey – estimating that the LNG was acquired by SOCAR for $40m less than the sum it charged Malta.

Leaked emails to The Daphne Project indicate that a UK consultancy firm hired by ElectroGas remarked that the arrangement to have SOCAR buy the gas was an “unusual arrangement” when the gas is actually being acquired from Shell.

But in its replies ElectroGas was unwilling to engage with questions on whether the price of gas acquired by SOCAR was hiked up or factoring in an additional cost for SOCAR's intermediary services in the procurement chain.

It also did not answer whether it would reveal the full contract it signed with the Maltese government, as well as volumes and prices of LNG it had acquired.

“Following an open competitive process in early 2013 and the subsequent successful award of the tender, via a transparent procedure, ElectroGas Malta Limited was selected to construct and operate the Malta LNG to Power Project… All project agreements and arrangements have been subject to the highest degree of scrutiny including specific vetting and subsequent approval, at European Commission level, which confirmed that the rate of return was in line with similar projects,” a spokesperson for the consortium said.

“ElectroGas activities do not include the trading of LNG – its sole business is the provision of safe and reliable gas-powered electricity to Enemalta plc.”

The consortium constructed the 200MW Delimara power plant, which is powered by LNG shipped in through a floating storage unit. The shareholders are SOCAR, Siemens, and GEM Holdings, which groups the Tumas and Gasan group of companies together.

Read also: Government defends energy deal: Gas hedging provided price stability, lower tariffs

The Daphne Project leaks revealed that Konrad Mizzi’s and Keith Schembri’s financial advisor was a member of the selection board that chose the ElectroGas consortium. Brian Tonna of Nexia BT was one of 25 members on the selection board that chose Electrogas as the preferred bidder. Nexia BT was the financial services firm that helped set up Panama companies for Mizzi and Schembri. The process had started shortly after the 2013 election but the pair insist they only took possession of the companies in 2015.

The Panama companies had as their "target client" a Dubai-based company 17 Black, which is reported to have received a payment from the Malta agent of the gas storage tanker that forms part of the gas power project.

The emails leaked to The Guardian show that ElectroGas entered into a $1 billion deal with Azerbaijan’s state-owned company Socar, through which Malta will import all its gas needs from the company for 10 years. The price at which Enemalta and Electrogas buy gas from Socar is fixed at €9.40 per unit for five years, until April 2022, the leaked contracts show. The multiple energy contracts, signed in April 2015, bind Enemalta to buy €131.6 million worth of LNG from Electrogas yearly.

An energy expert quoted by British newspaper The Guardian, a partner of The Daphne Project, questioned the judiciousness of the contract. Simon Pirani, a senior visiting research fellow at the Oxford Institute for Energy Studies, said that since the deals were inked, oil and gas prices have crashed, with the expert saying that Malta paid “nearly twice the market rate” for its gas needs in 2017.

This came at a potential profit of $40 million (€32.7 million) for Socar, who declined to comment on the contract details, citing confidentiality. After the five-year fixed price period, Enemalta will pay an index-linked price set at 14 per cent of Brent oil.