A man with a plan | Konrad Mizzi

Here comes Konrad Mizzi. We don't have camomile tea, we regret to inform him as he takes his seat inside the interview room. Not to worry, he says, as he sticks his hand in his pocket to produce said teabag. He's prepared. Almost too prepared.

You might know Mizzi from his animated appearances on television current affairs shows, taking on ministers like Tonio Fenech on Malta's great energy conundrum, shooting off numbers and data, perhaps mentioning every now and then that he's got a PhD... You will either like him or you won't. He's all New Labour: smart, intelligent, adept at switching from Maltese to English in that well-worn tactic of appealing to the new middle class Joseph Muscat wants to attract... And he could well be Labour's next energy minister, seeing as he is the main sponsor of the PL plan to fast-track a natural gas terminal to bring the prices of energy down as quickly as possible.

His confident presentation is giving Tonio Fenech a good run for his money.

Formerly a chief information officer at Enemalta, Mizzi is however gambling his political career by lending his face to Labour's ambitious plan to reduce energy bills by 25% and hive off 40% of Malta's energy supply to a yet unknown private company.

Will Mizzi take personal responsibility by resigning, if Labour gets elected but fails to deliver its promise to reduce the bills?

Mizzi does not even consider this eventuality. "There will be no need to resign from parliament," he replies candidly. "Because we will make it happen... It is based on proven models and there is significant interest to make it happen."

Labour's bold plan to reduce the price of electricity from the current 18 cents per unit to 9.6 cents per unit hinges on three factors: the conversion of the present BWSC plant to natural gas (LNG); the electricity interconnector which is already being developed between Malta and Sicily; and the construction of a privately-owned 200MW gas-fired plant.

Ultimately, the success of the plan depends on the availability of a private company forking out €142 million to finance a gas storage facility that will enable Malta to import gas from ships, and invest €166 million in a new gas-fired plant which will be contractually bound to sell 200MW of electricity at a set price for 10 years.

On its part, the Maltese government will be contractually bound to buy 40% of its energy needs from a private operator for the next 25 years.

Mizzi makes it very clear that the market in the generation of energy is already an open one, and a Labour government would select the new player in the energy field through a competitive tendering process according to EU rules.

"Malta will not be depending exclusively on this source, as Labour's plan also envisions the conversion of the present BWSC plant to gas and the interconnector, which can provide up to 200MW."

But how can Labour guarantee that there is a company out there which would invest €300 million and guarantee a fixed price for energy for an entire decade?

Mizzi would not reveal at what rate at which the private operator will be expected to sell its energy to Enemalta, citing commercial sensitivity even though there is some "estimate".

"I'm more than confident that there is enough interest in the private sector to realise the project. Gas- fired plants are a proven technology (Combined Cycle Gas Turbine) used all over Europe. Secondly, the investment they will make will be a lucrative one. We will be providing them with a 25-year contract, so essentially Enemalta will guaranteeing that it will be buying electricity from the operator. They will have a guaranteed demand and they can do their workings clearly, factor in the capital cost, the interests and return and come up with a fixed rate."

The only variable in all this is the price of gas. Various international studies and reports show the price of gas is bound to increase over the next years due to increased demand in countries like India and China. 

Mizzi insists that the estimate on gas prices made by Labour's consultants was not a haphazard one but one based on the price of LNG for southern Europe, factoring in an "extra contingency on top" to ensure that if gas prices increase in the next months, these will be also factored in the formula.

"The result was a prudent and conservative estimate. Long-term purchasing agreements similar to the 10-year fixed rate agreement proposed by Labour are very common in Europe."

But is Labour's proposal too good to be true? How can one expect a private operator (dubbed 'Malta's Father Christmas' by Tonio Fenech) to come to Malta to spend €300 million and bind itself not increase the price of energy it sells to government for ten years, irrespective of any changes in international gas prices? 

"Malta's current annual fuel expenditure is equivalent to all the €300 million investment required to operate a plant for 25 years. The fuel costs will go down in a way of ensuring a fair return to the new company."

So if the new operation is so lucrative, why will it be in private and not in public hands?

"Because at the moment Enemalta's cash flow position is nearly insolvent... it cannot borrow any money. It did not even pay the dues for excise duty on fuel."

But Labour's confidence in its ability to deliver its plan is based on the feedback it received from private companies.

"We have talked to a number of companies, not just one or two but quite a few, and most of these companies said that they would be in a position to fix the price for 10years."

Doesn't the fact that Labour has already met several companies raise the suspicion that the expression of interest will be a mere formality to ratify a behind-closed-doors agreement?

Mizzi is taken aback by such a suggestion, insisting that Labour is interested in having the largest number of companies to apply in a competitive process. "We are even having a month-long roadshow to entice the largest number of bidders... Our interest is to go for the cheapest price offered as long as it respects the environmental conditions, and that the process will be transparent."

But if Labour is so keen on transparency, why does it not publish the full studies in its hands instead of a power point presentation?

Mizzi insists that his Powerpoint presentation was so transparent on the results of these studies, that it included costings of different options even those which were discarded by Labour. "We do not want to give a breakdown of the results because we do not want to reveal the return on capital to the private sector."

But how can Labour expect people to believe in its plans if all we can see are the results and not the way these results were calculated?

Ironically Mizzi justifies this citing "commercially sensitive information" - a reason often given by the present government not to provide information. "All we are not giving away is the cost given to the profit which will be made by the private sector... We do not want to give away our negotiating position with the private sector...." 

Among the multiple options considered by Labour is the pipeline from Sicily which would take six years to complete: curiously Labour's own study concludes that importing gas through this option would be cheaper than the 9.6 cents envisioned in Labour's option of importing gas by ships.

"The issue is that it will take six years to build the pipeline. Moreover we will be saving €188 million a year by immediately shifting to gas. The cost of the infrastructure to be able to do so is only €142."

Mizzi does not include the pipeline option but he points out that this will take at least six years to complete. "If in six years there are EU funds available, the investments we will have made in the plant can still be fuelled by the gas pipeline."

So why not be a bit more prudent and wait a few more years instead of rushing into a 25-year agreement with the private sector?

"One of the advantages of having a 10-year fixed price is that if the pipeline does materialise by then, the private operator will be in a position to buy its supply from this source. In this way Malta would not only have made savings in fuel costs over the previous 10 years, but would benefited from lower prices after the interconnector comes in place."

But would this not render the investment of €142 million in the gas terminal redundant?

"The terminal can still be used after the pipeline for bunkering due to Malta's strategic position in Mediterranean. Moreover the savings on fuel made in the next six years will more than make up for the €142 million expenditure on the gas terminal as Enemalta presently spends an annual €360 million in fuel."

But the apparent short-term advantages could well come at the cost of a long-term dependency on a private company. Mizzi has already gone on record stating that the new private power station will be providing 40% of our energy needs; the present government-owned plant would provide another 40% and the interconnector only 20%.

Mizzi insists that when Malta starts getting cheaper prices from the interconnector the share of the BWSC plant will decrease. But will Malta be contractually obliged to buy a fixed amount of energy from the new private operator?

Without any hesitation Mizzi replies, "Yes and that is what provides the private sector with the ability to fix the price."

So does that mean that if prices of energy from the interconnector become cheaper than the rate offered by the new private operator, will we be prevented from increasing the interconnector at the expense of the private power station?

Mizzi says that what the government will still be able to do is to decrease the share from the government-owned power station.

So for how long will we be bound by this contractual obligation to buy nearly half of our energy needs from a private company? "The contract is for 25 years but this counts for only 40% of its load."

And does this not mean that the Maltese government will lose its power to determine the country's energy mix for a quarter of a century, in a way that Malta will be hampered from increasing the share of other possibly cheaper sources of energy at the expense of the new private plant?

"What we are saying is that we will get a fixed price for energy which will bring the cost of energy from 16 cents to 9.6 cents... and part of that agreement commits us to buy electricity from the private sector for 25 years... we are ensuring that we get a cheaper price while retaining 60% our energy portfolio in our hands in a way that we can determine the mix of this component. This is a good balance."

He also points out that the interconnector can never provide more than half Malta's energy needs as the maximum amount it can provide is 200MW.

So what will happen after the 10-year price-fixed agreement expires?

"What happens in power-purchase agreements like this is that in the eighth year you will start renegotiating the price, and there are contractual mechanisms to determine this price against that of gas and various other things."

What if the price in 10 years' time will be unsustainable for Malta's finances?

"We will have a number of years to plan for that and address this issue and I am fairly confident, based on forecasts, that the price of gas will remain cheaper than oil."

He also points out that gas supply agreements for LNG take the shape of 10-year agreements. But will the Maltese government have the option of rescinding the contract after 10 years?

"The government will have the option of buying the plant back after 10 years but what normally happens is that the price will be renegotiated in the seventh or eight year in a way through which the private operator will enter in a new supply agreement."

The new power station will produce an extra 200MW of energy. But the interconnector and the existing power station together can already cater for Malta's energy needs. Why should we have a private power station, which produces energy, which we do not even need?

Mizzi points out that the new private power station will replace both Marsa and the inefficient old Delimara power station. But he acknowledges that it will produce more energy than we need.

"We need that for economic growth and for reserve capacity... conventional practice in Europe is that you need to have an extra capacity equivalent to your two largest plants. In this way Malta would have enough reserve capacity to ensure an adequate supply of energy if the interconnector is damaged. All you need for this to happen is a  ship's anchor hitting it and disabling it, putting it out for at least six weeks and in that case you would need a contingency."

The private company will also own the new gas storage facility. Since the government-owned power station will be converted to gas and rely on the same gas supply as the private company, will it have to pay to use this facility?

Mizzi confirms that the government will not only be paying to buy electricity from the private company but will also start buying gas to power its own power station. In fact apart from the 10-year purchasing agreement, the government will have to enter into a gas supply agreement for its own power station. But Mizzi insists that this expense is already factored in Labour's costings.

So does it make sense that the terminal, which is the gateway of our energy supply -both for the private plant and the government owned plant - to be in the hands of the private sector?

"Enemalta will still retain the interconnector, which ensures control over a major component of the energy mix. And I want to make it clear that Enemalta will not be privatised."

The other source of energy will be renewables, which Mizzi claims Malta can still reach its 10% target by 2020 - although he does not exclude wind energy, he points out various difficulties of employing the use of deep-water wind technology, which is why he advocates shifting 4% of the government's wind targets to solar farms. "What we need are 20 new solar installations which produce 20MW per annum."

He is confident that using "disused quarries, factory roofs, sheds and farms" will enable this target to be reached.

But with the prices of energy going down will interest in solar panels on private homes drop? "From a family perspective people will have more disposable income.  Although their bills will go down they will have more money to enable them to invest in making even more savings."