Government prefers one dominant energy partner

The government has clearly expressed a preference for one single operator from which it would buy both the gas required to furnish its gas-fired power station and also the energy produced by the new, privately owned power station.

This emerges from a copy of the 'expression of interest' call that has been tabled in parliament. But the EOI does not preclude two separate bids for the two energy contracts at stake.

The EOI envisions that Enemalta will have two separate agreements: a gas supply agreement to buy energy for its plants and a power purchase agreement to buy electricity for the national grid. Both agreements will last for 18 years, and both are expected to begin on 31 March 2015 - a suggestive choice, coinciding as it does with Freedom Day.

The EOI reiterates that separate bids for the two contracts "may be considered" while reiterating the "preference to enter into energy contracts with a single entity."

The EOI states that the new gas plant needed to supply Enemalta with gas for its power station and the new private generating plant selling energy directly to Enemalta may be operated by separate entities.

But the EOI states that Enemalta's preference is to have a single entity which will build, own, operate and maintain both plants and provide the supply required for the two separate contracts.

Effectively, the government has reduced the length of the power purchase agreement with the new private operator from 25 years, as it proposed before the election, to 18 years.

Significantly, Enemalta will also enter into a long-term, 18-year, gas supply agreement with the chosen company for its own plant. Deliveries of gas to the state-owned power station will also start on 31 March 2015.

It is expected that Enemalta will buy gas at a fixed price for the first five years, followed by an indexed price for the next 13 years.

The EOI also makes it clear that the gas supply agreement should allow Enemalta "maximum flexibility" in determining the share of energy from the state-owned plant and the interconnector. This suggests that the gas supply agreement will not explicitly determine the share of energy between the interconnector and the state-owned plant in Malta's energy mix.

The EOI indicates that in 2015 the interconnector and the new power plant will both be providing around 26% of Malta's energy needs, while the rest will be provided by the state-owned gas-fired power stations. This suggests a slightly higher use of the interconnector than the 20% envisaged by Labour before the election.

It is also expected that the power purchase agreement will have a fixed price for the first 5 years and an indexed price for the remaining period.

For the purpose of facilitating the process, a special purpose company will be set up by the state, but this will be eventually taken over by the successful company. It will be responsible for conducting environmental impact assessments and health and safety audits.

The EOI also reveals that the permit process will be started by Enemalta before the award of the contract. However this preliminary process will cover a range of possible technical solutions "which are likely" to be proposed. The EOI also refers to permits being fast-tracked to ensure that construction starts in October 2013.

The SPC will also hold a lease over the site of the power station. The EOI refers to a "long-term lease agreement."

The new gas plant will be constructed either onshore or mounted on a barge close to the station.

The onshore areas identified by Enemalta are located on reclaimed land. One of these areas may require the clearing of extensive amounts of backfilled material.

The energy contracts will be awarded to "the most economically advantageous bid," which is understood to be the price per kWh of electricity supplied and the price per unit of natural gas supplied to Enemalta.