The privatisation of energy

The government has announced that Shanghai Electric Power will be buying a 33% stake in Enemalta that includes ownership of Malta’s main power station, the 'BWSC' plant (or Delimara Power Station extension).

The ElectroGas consortium will also own a brand new power station that will sell electricity directly to Enemalta, which in turn has signed an agreement to buy gas from ElectroGas for 18 years.

This means that ElectroGas will be providing gas to both its private power station, and the plant owned by Shanghai Electric. Both privately-owned plants will then be selling the electricity produced to Enemalta.

This effectively means that, with the exception of the national grid, the Malta-Sicily interconnector and the Marsa power station, all power infrastructure in the island will be in the hands of two private companies who naturally enough, are in the business of making a profit. 

It is unclear whether Malta will be able to make full use of the Malta-Sicily interconnector due to its contractual obligations towards ElectroGas. As it happens, Shanghai Electric and ElectroGas (through SOCAR) are respectively owned by two foreign states, China and Azerbaijan.

Before the election, Labour promised the conversion of the BWSC plant to gas. The conversion was linked to the development of the new gas terminal. Before the election, Labour had excluded the privatisation of Enemalta. Now it emerges that it will be Shanghai Electric that will be paying for the conversion. This either means that Labour did not know how it was going to finance its electoral promise, or else the deal with the Chinese company was done before the election.

In the meantime, the case officer's report presented to MEPA on the mooring of a gas storage vessel in the Marsaxlokk harbour states that the government is still actively pursuing the possibility of having a gas pipeline link to mainland. In such cases, the floating storage unit (FSU) can be shipped away to make way for the long-term solution. Both MEPA and government are citing this an advantage of storing the gas in the Marsaxlokk harbour in the face of opposition and safety concerns.

But if a gas pipeline is actually developed in the medium-term, how will this impinge on the 18-year gas supply agreement signed by Enemalta with the ElectroGas consortium? Since Enemalta is contractually obliged to buy gas from ElectroGas, if a gas pipeline is developed who will own the infrastructure - the Maltese government or ElectroGas?

What is sure is that the government is on track in honouring its electoral promise, which will see a conversion to gas and a significant lowering of bills. Moreover in the absence of privatisation, the state had no money to pay for the conversion of the BWSC plant to gas. The only alternative to privitisation was waiting for EU funding for a gas pipeline.

Those who doubted that this was possible have underestimated Labour. In fact, on this aspect one gets the impression that Labour had done its homework well before the election.

But the long-term implications of the part-privatisation of Malta’s energy sector are still to be seen, especially in the context of having two companies controlling the energy market in Malta. Surely Enemalta was far from a showcase for public ownership. Under previous Nationalist governments, cases of bribery and corruption gave the impression of a public good run by private interests for their own private gain.

But now the government has already secured a cheap price of electricity for the first years in its deal with ElectroGas. The economy will probably benefit from an increase in consumption, as people will pay less in bills and spend more on other commodities.

But the trade-off between long term energy sovereignty and short-term gain could be a dangerous one.