Updated | Mizzi defends SOCAR hedge, did not intervene in deal

Energy minister Konrad Mizzi has insisted that his “ministerial direction” into Enemalta’s fuel hedging was limited to a direction to Enemalta to keep fuel prices low and broaden their supplier chain. 

A “ministerial direction” to include Azerbaijani state oil company SOCAR in Enemalta’s list of suppliers, has been flagged the Auditor General, who described a direct order on six months’ hedging on unleaded and diesel as “detracting from the process’s accountability and a shortcoming in terms of governance.”

Energy minister Konrad Mizzi has defended his decision to avert a 2c increase at the pump, by opening contact with the Azeri company – which will supply Malta with LNG as part of the ElectroGas consortium.

“In the second quarter of 2014, Enemalta had closed hedges on fuel and petrol and its the. Enemalta chairman Charles Mangion had informed me that the markets were showing that petrol and diesel would go up by 2c at the pump,” Mizzi told the press Tuesday morning. “I told him that this was simply not an option and that we’d do everything possible to avert it.”

According to Mizzi, he directed Enemalta to keep to price stability targets by looking for deals on the market and to include SOCAR in its suppliers’ list.

“I didn’t force [Enemalta chairman] Charles Mangion's hand,” he said. “I knew the people at SOCAR and this was an option I asked Enemalta to explore.”

“SOCAR were part of the winning ElectroGas bid and we were also in further discussions with them so we agreed to ask them whether they could complement the existing suppliers. A few weeks later, Mangion told me that a deal with SOCAR would not only keep the price of petrol prices stable but actually reduce it by 2c. I’d repeat what I did wholeheartedly had I been in the same situation.”

So it turns out we have been paying high fuel prices because of @KonradMizzi's incompetence. And he says he'd do it again. #MizziScandal

— Simon Busuttil (@SimonBusuttil) March 10, 2015

Mizzi refused comparisons with accusations of interference lobbed at Austin Gatt in a previous NAO report in 2013. “That was a completely different situation in which directions were given over the phone, there was a lack of email exchanges, and the fuel procurement committee was not even involved,” Mizzi said.

“In this case it’s the advisory committee that negotiates and closes transactions according to targets it sets… all I did was recommend they include SOCAR in their suppliers’ list.”

Mizzi also defended the selection of SOCAR, one of the ElecrtoGas partners, over its chequered record on accountability and transparency: “SOCAR is conducting work with several EU governments including a pipeline to Italy as part of the EU’s strategy to reduce energy dependency on Russia.”

NAO report

The drastic crash in crude oil prices at the end of 2014, with Brent crude hurtling to below $50 a barrel in February, saw Enemalta registering a loss of €8.6 million on crude oil hedging and €5.5 million on hedging for unleaded petrol and diesel products.

The Opposition is already calling the report on these losses, and the SOCAR order, “a scandal that stinks” and will expectedly lay into the fact that Mizzi gave ministerial direction on the SOCAR deal. Similar opprobrium was reserved for his predecessor Austin Gatt back in 2013, when an NAO report into fuel procurement flagged “ministerial interference” in procurement.

READ MORE Socar's problems of accountability

But the NAO expressed reservations on the manner that Enemalta’s fuel product requirements for the last six months of 2014 were provided in hedge agreements entered into with SOCAR Trading SA, specifically for $920 per metric tonne of unleaded fuel, while that for diesel was at a rate of $910/MT.

Effectively this delivered a decrease of 2c on unleaded fuel at the pump, and a stable diesel price, a result that Konrad Mizzi yesterday remarked was done in line with government policy for price stability.

However the NAO noted how in March 2014, Enemalta’s advisory and finance committee (AFC) were given targets on fuel product hedging with the intention of reducing the price of unleaded and diesel. The resulting SOCAR deals were conspicuous  by their lack of documentation on the final AFC approval and placement of order with SOCAR Trading SA.

It results that on 3 April, then Enemalta chairman Charles Mangion informed the petroleum committee that deals on petrol and diesel hedges for the second half of 2014 had been concluded with SOCAR Trading “as per ministerial direction.”

On his part, energy minister Konrad Mizzi told the NAO that government’s efforts – namely instructing Enemalta to widen their supplier base and opening the lines of contact with SOCAR – “was limited to… efforts at reducing consumer prices”.

But the NAO insisted that documentation detailing final approval issued by the AFC and the subsequent placement of orders with SOCAR was incomplete. “The lack of documentation rendered it impossible for the NAO to determine the extent of ministerial direction exercised and responsibilities assumed by the AFC. Given the magnitude of the agreement reached with SOCAR Trading SA, this Office considers the lack of documentation as detracting from the process’ accountability and a shortcoming in terms of governance.”

Enemalta remains without a formally documented hedging policy, something that Konrad Mizzi yesterday told MaltaToday he would remedy.

But the NAO also pointed out the significant improvement registered in terms of the AFC’s governance, with documentation and correspondence exchanged by members of the AFC indicating that the committee was continuously monitoring oil and foreign exchange markets.