€88 million guarantee for ElectroGas ‘temporary solution in national interest’

The government has said that an €88 million state guarantee to cover a bank loan for ElectroGas to build the new gas power station was a temporary solution, and necessary “in the national interest”.

Energy minister Konrad Mizzi said the guarantee was a temporary solution until the government receives clearance from the European Commission that the Security of Supply Agreement it had entered into with Electrogas satisfied EU requirements and does not constitute incompatible state aid.

“All parties including Electrogas, the bank lenders and the Government agreed to temporary bridge financing,” Mizzi’s said. “In the temporary bridge loan, the Security of Supply Agreement needed to be replaced. Instead of it, as part of the bridge financing, the shareholders of Electrogas were required to pledge their equity shareholding and also issue letters of credit to the banks as a form of guarantee. On the other hand, Government issued a temporary guarantee to the banks.”

He said the temporary guarantee was approved by the State Aid Monitoring Board in accordance with EU rules.

Last week, the Times of Malta revealed that Electrogas was awarded an €88 million bank guarantee after it had become evident that they could not raise the money otherwise. Sources close to the Bank of Valletta told the newspaper that the gas power station project would not have been possible without this loan.

The Opposition said the “unprecedented” guaranteed was “highly questionable” and argued that other competing companies for the tender would have been disadvantaged because the facility was not mentioned in the Request for Proposals for the LNG plant.

“What led Government to go against precedent and guarantee the financing of works awarded to a private consortium through a public call for proposals?” the PN questioned in a statement.

“When was the guarantee issued by Government? Who authorised the issue of the guarantee by Government? What aspect of the new power station project is covered by the guarantee?

“What are the terms and conditions of the guarantee? Under what circumstances can the guarantee issued by Government be called upon by the Bank? Under what circumstances can Government be released from such guarantee?

“The Prime Minister has tied his political future with the timely delivery of this project. Consequently, what is really at stake here is the Prime Minister guaranteeing his own political promise at the expense of taxpayers.”

The government resisted calls to publish the documentation on the contract award to ElectroGas.

But Mizzi said that bidders for the gas plant hd been informed that the selected bidder would enter into a Security of Supply agreement with the government. “This was complimentary to the power purchase and gas supply agreements entered into by Enemalta and Electrogas. On the basis of these transaction agreements and the Security of Supply Agreement, Electrogas has raised all debt and equity required to build the project.”

ElectroGas statement

In a statement, ElectroGas Malta said that it had raised all the funding it needed for the natural gas plant, through a consortium of international and local lenders.

The consortium denied that there was any shortage in funding for the project and that long-term project financing was readily available following EU clearance of the Security of Supply agreement. “The need for the government guarantee is part of the process put in place simply to avoid any delay that would result from waiting for the EU approval process to take its due course.”

 “The financing structure relies on a ‘Security of Supply’ agreement, under which the government would have the right to step in under certain circumstances and secure the supply of electricity and gas for Malta. The Security of Supply Agreement was part of the original tender,” the consortium said.

It said that the government had entered into discussions with the European Commission to seek clearance so that the agreed Security of Supply Agreement satisfied the EU’s requirements and does not constitute incompatible state aid.

“The government and ElectroGas believe that it is good practice and prudent business to seek EU clearance and are confident that the Security of Supply Agreement will be approved, therefore until EU clearance is given, all parties agreed to temporary bridge financing.

“This arrangement is permissible under EU regulations provided that EGM pays a fee to the Government for issuing the guarantee that is approximately equal to any savings that could result from the guarantee. This was done in December 2014.”