Armada Mediterrana – another Sta Marija convoy

The recent admission by the minister of finance that Malta’s banks are risk averse strikes a discordant chord in the efforts of FinanceMalta and Malta Enterprise, complemented by practitioners who tour the globe, trying to attract foreign business. The minister said that “local banks will hold a meeting with the Institute for Financial Services Practitioners, so as to understand their concerns”. He was answering questions from the press, in light of Prime Minister Joseph Muscat’s recent call on banks to loosen their lending practices.

It is a pity that a solution seems to have been relegated to the IFSP committee since the matter is of concern to the country at large.  With diplomacy, the finance minister can delve into what are the real reasons why the banks are so risk averse, particularly in lending to business associated with emerging economies such as Iran, and of course why during the past decade they never geared up to process credit card volume generated in millions by IGaming companies.

They are making good profits and charge higher interest rates to SME’s, as disclosed by a recent MCCAA study.  All this in the context of the announcement of a successful conversion of a Floating Storage Unit (FSU) Armada LNG Mediterrana tanker which was officially inaugurated in a sail-away ceremony in Singapore by the Prime Minister and Konrad Mizzi.

The latter was responsible for the clean energy revolution. Can this foreign business face the same banking restrictions in Malta when it starts trading in gas next month? The Prime Minister hailed the occasion as “Freedom from the manacles which have in the last decades, due to lack of political will, shackled our people’s spirits to surge ahead, to catch up with our European neighbours, and to push boundaries, not least in the energy sector, for the benefit of our people and future generations”.

One hopes that the banking bottleneck which acts as a Damocles sword over the head of foreign investors is removed and a workable solution is found. Certainly a new chapter has been written in international business with the arrival of the tanker which will be providing liquefied natural gas to the new 215MV plant at Delimara, inside Marsaxlokk harbour. The LNG tanker at Birzebbugia would be used for a limited time until Malta would have its gas pipeline with Italy in place.

Nostalgically we recall how such a pipeline was offered to us for free in 2006 when a connector was being laid by ENI between Libya and Italy and for some unknown reason the offer was rejected by the PN administration as advised by the mandarins at Enemalta. The latter was buying crude to run its turbines. Perhaps then, as now, the lobby in favour to continue buying oil was as strong as it is today.

The scaremongering against using gas has been the war cry of the Opposition since the gas project started three years ago. The shadow energy minister, Marthese Portelli reiterated the Nationalist Party’s opposition to the LNG tanker, arguing that it carried with it high risks.

She exclaimed that “It is clear that Muscat does not care about the health and safety of Maltese families, especially those in the south of Malta.” 

She added that the new gas fired power station was not required and the government should have used the interconnector. It is a safe bet that on the arrival of the Armada next month (ubiquitously timed as the traditional Sta Marija convoy) there will not be citizens to welcome it with flowers but protestors against the berthing of the behemoth in their backyard. Residents in Marsaxlokk have been warned by certain quarters about the risks associated with a permanent berthing of a floating LNG supply carrier at a jetty next to the power station.

According to surveys residents would prefer the gas tanker to be berthed at a new jetty built out at sea, ignoring the fact that this comes at an enormous expense and delays the implementation. Really and truly the preachers of another Armageddon are saying danger is knocking at our doors due to the construction of a new power station.  At present, the controversial BWSC plant is run by burning obnoxious heavy fuel oil (soon to be converted to gas), which is supplied through storage in huge tanks.

This article tries to explain in non-technical terms the advantages of using LNG by way of cost saving and cleaner air, and tries to dispel the myths about the dangers of transporting LNG in certified carriers. To start with one may ask why use LNG and not other fossil fuels? Obviously the heavy carbon footprint of burning heavy fuel oils or diesel to generate electricity is a major hazard contributing in no uncertain terms to worsening climate change.  Another factor is that the cost of gas is cheaper.

Under the PN administration users were subjected to high tariffs, blaming oil spikes and cost recovery at a loss making Enemalta. Tariffs based on a study by KPMG were expected to yield an 8% return on capital.  In the last two years Enemalta has reduced its tariffs by twenty-five percent. The Opposition had waxed lyrical against building of permanent gas storage tanks on the mainland, saying they will ruin the views of the harbour – estimated to reach the size of two Mosta domes.

The question arises as to how safe is the process of transporting LNG in special ocean-going carriers. The answer is simple – all precautions are taken to lower risk as stringent operational and safety regulations govern the transport and storage of LNG. With hindsight during the past three decades only minor incidents have occurred where LNG was accidentally released into the atmosphere.

These incidents would be impossible to replicate today because technology for transporting and storing LNG has improved immensely as have global industrial safety regulations and standards.

Take the example of Japan, a country which offers an excellent case study, as it imports nearly all of its natural gas in the form of LNG, some of it directly into Tokyo Harbour. It is worth noting that on average, an LNG ship safely enters Tokyo Harbour every 20 hours. It is common knowledge that LNG carriers use a double hull design for increased safety and therefore provide protection in the rare event of a collision or grounding. The double hull consists of a steel outer hull, along with a second steel inner hull, forming a void space approximately 10 feet in depth.

The LNG tanks are constructed of either stainless steel or aluminum. They are heavily insulated to protect the steel hull from the elements and to maintain the LNG cargo at its low temperature. The area between the inner hull and the LNG tanks is filled with a nitrogen gas blanket that is monitored for gas leakage so corrective action can be taken immediately if a leak occurs. These new vessels are also equipped with back-up power and steering systems as an extra measure of safety.

Back to Marsaxlokk Bay, the studies conducted so far aim for a perfect safety record based on a serious operational and financial commitment by the government to ensure that it succeeds. Having explained in some detail the technology behind sea transportation of gas one may ask whether there is a bright future for this product in Europe. The answer is in the affirmative as other newcomers see a growth in their LNG imports, including Indonesia, Malaysia, Thailand and Singapore, but regrettably Europe will continue to consider LNG as a last resort, although the massive investment at Marsaxlokk is commendable.

To conclude, one must appreciate that residents of Birzebbugia, Marsaxlokk and Qajjenza have a heavy cross to bear, considering the area supports a concentration of heavy industrial activity. Undoubtedly the conversion of the power station to gas will definitely improve the air quality in the island and of course there will be further possibilities of reduced tariffs.

George Mangion is a senior partner of PKF, an audit and consultancy firm. He can be contacted at [email protected] or on +356 2148 4373