Updated – How Thursday’s Newspapers reported the NAO report:
The Times leads with a story on the published report by the National Audit Office about the selection process that awarded the new power station project to Electrogas in 2013. The report says that Electrogas was allowed to proceed to a further phase of the bidding process, eventually winning the contract, despite several ‘instances of non-compliance with minimum requirements.’
The Malta Independent, also covering the report, says that the NAO found that Malta is paying €50 more per MWh supplied by Electrogas than it would have from the interconnector. In reaction, Konrad Mizzi who was then Energy Minister, said that he disagreed with the report’s conclusions on pricing.
In a statement published by In-Nazzjon, Opposition Leader Adrian Delia said that the country is paying €200 million more for the energy – adding that there are now another 200 million more reasons why Minister Mizzi should be removed.
L-Orizzont says that the Auditor General’s report is confirmation that the energy project is an example of best practice, and that the selection process was well structured, fair, and transparent.
Earlier
As stated in our evening roundup The National Audit Office presented a report on the power station contract awarded to Electrogas to parliament.
The Times says that the General Auditor was not satisfied that the bidding process complied with minimum requirements.
The Malta Independent says that the NAO report points to inconsistencies in the evaluation of submissions, and some bidders were approved despite having the same shortcomings for which other were justifiably disqualified.
Konrad Mizzi, at the time Energy Minister, had described the selection process as “rigorous.”
The Media Reports
Electrogas: NAO flags shortcomings in due diligence, says interconnector ‘cheaper option’ – Malta Independent
‘Multiple instances of non-compliance’ in winning Electrogas bid NAO finds that interconnector electricity was much cheaper than Electrogas power station – Times of Malta
‘Significant concern’ over due diligence in Electrogas tender – Auditor General- Malta Today
“Miljuni misruqa min-nies” – Delia; “L-istess għażla minkejja nuqqasijiet” – Muscat – Newsbook
L-Awditur Ġenerali jikkonkludi li l-proġett tal-power station tal-gass kien serju u trasparenti fl-istadji kollha tiegħu – One News
L-Awditur Ġenerali jikkonferma – il-proċess tal-kuntratt tal-power station kien imbagħbas – Net News
Muscat sodisfatt bir-rapport tal-Awditur dwar l-Electrogas – iNews
Konrad Mizzi: ‘Please Have Some Patience, Inquiry Will Clear Me And Reveal All’ – LovinMalta
‘Millions stolen from taxpayers’ on power station deal – Shift News
Reactions
Tourism Minister Konrad Mizzi on Wednesday insisted he would not step down in light of the recent NAO report on the Electrogas deal and 17 Black revelations, insisting there was “no evidence of wrongdoing” against him. Addressing a press conference at the Tourism Ministry in Valletta, Dr Mizzi said that despite the report published earlier on Wednesday and the revelations on the once-secret Dubai company “there were no allegations of corruption”. Times of Malta
The Auditor General’s findings on Electrogas show how the tender was a “premeditated” effort to award the contract to the company, according to Adrian Delia. The Opposition leader said the National Audit Office report provided “200 million reasons” why Konrad Mizzi should resign. Delia said the report was replete with observations on how two weights and two measures were used throughout the bidding process to the advantage of “the selected few” Malta Today
The matter was discussed in Parliament in the evening session, as reported on TVM.
Partit Demokratiku said that the report should go to the Police to initiate investigations.
Repubblika said a cursory look at the conclusory section indicates that the Auditor General raised a number of serious concerns in the deal from start to finish and we cannot therefore fathom how the government feels able to claim that the same report absolves it of all wrongdoing.
Full Official NAO Statement
On 11 April 2013, Enemalta published a call for Expressions of Interest and Capability (EoIC) for the supply and delivery of natural gas and electricity. Following the shortlisting of candidates, Enemalta issued a Request for Proposals (RfP) on 6 July 2013.
The ElectroGas Malta Consortium was selectedas the preferred bidder on 12 October 2013. Subsequently, ElectroGas Malta Ltd entered into a series of contracts with Government and Enemalta. On 30 July 2015, the National Audit Office (NAO) was requested to investigate the process leading to award and the contracts entered into.
The issues raised in this press release only present the essence of the complexities that
characterised this audit. This review covered all aspects of the project, from conceptualisation to its eventual execution, its financing, state aid implications and comparison to rates charged for electricity sourced through the interconnector. A far more comprehensive account of all these aspects, and others, is provided in the full report that is being published. In order to make the report more accessible, an abridged version is also being issued.
The key concern that emerged from the NAO’s review of the EoIC evaluation process was the inconsistent approach at times adopted in the assessment of submissions. While the NAO acknowledges that certain submissions were eliminated on sufficient and justifiable grounds, others proceeded to the RfP despite similar shortcomings. Notwithstanding the positive aspects noted with respect to the RfP, the NAO’s attention was drawn to major changes effected during the bidding process, such as revisions to take or pay obligations and the concept of security of supply, which shifted risk from the bidders to Enemalta and Government. In terms of RfP evaluation, although the NAO identified points of divergence in the allocation of marks, these bore no effect on the outcome.
However, of concern were shortcomings related to due diligence, with checks undertaken deemed insufficient. Also of concern was the lack of evidence of Enemalta’s consideration of alternative procurement models and it is in this context that reservations regarding the design of the project emerge.
From May 2014 onwards, ElectroGas Malta Ltd, Government and Enemalta, as well as other parties, entered into various contracts, including the Power Purchase Agreement, the Gas Supply Agreement and the Implementation Agreement. The term of these Agreements was for 18 years from achievement of the first phase of construction of the energy facilities. Although the project was to be completed by 14 April 2017, this target was not achieved until 28 September 2017.
Delay charges, capped at €18,000,000, were levied by Enemalta on ElectroGas Ltd. In terms of supply, Enemalta was to pay for energy and gas made available, thereby compensating ElectroGas Ltd for capacity, and
amounts delivered. Fixed rates were to apply for the first five years of the term, following which indexed pricing was to come into effect. Energy was to be sourced from the new plant, Delimara 4, while gas was to supply Enemalta’s converted Delimara 3 plant.
Shortly after the signing of the supply agreements, Gasol plc, the lead member of the ElectroGas Consortium, withdrew from ElectroGas Ltd, transferring its shareholding to the remaining members.
Although the change in shareholding was authorised by the Ministry for Energy and Health, and Enemalta, the NAO established that this was not in line with the prevailing contracts in force at the time and specifically breached provisions stipulated in the Implementation Agreement. Government’s involvement in assisting ElectroGas Ltd secure financing for the project first emerged in mid-2014, when it became evident that for ElectroGas Ltd to obtain funding, the Security of Supply Agreement (SSA), whereby Government would assume Enemalta’s role in the supply agreements in particular circumstances, was to be in effect. Until the European Commission’s clearance of the SSA in terms of state aid, Government consented to provide a guarantee to assist ElectroGas Ltd. Government guarantees were entered into with respect to the €110,000,000 bridge
loan facility, later revised to €450,000,000. Fees charged by Government exceeded €11,000,000.
Following the Commission’s clearance, the SSA was entered into, which led to financial closing in January 2018, repayment of the bridge loan by ElectroGas Ltd and the release of Government from guarantees issued.
From April 2017 to June 2018, ElectroGas Ltd invoiced Enemalta €13,800,000 for gas availability and €45,900,000 for gas delivered. In terms of energy made available and energy delivered, invoiced amounts were €53,600,000 and €111,500,000, respectively. In excess of 1,410,000MWh were delivered through Delimara 4, which resulted in a rate of €78.96/MWh.
During the same period, Enemalta sourced over 930,000MWh from the interconnector for a total cost of €57,400,000 which, when adjusted for other costs, implied a rate of €61.75/MWh. In addition, the NAO identified ample scope for improvement in purchasing decisions when sourcing energy through the interconnector.
To view full report (.PDF) please follow link.
To view abridged report (.PDF) please follow link.
