KPMG report on Labour energy proposal drawn up in one day

A report by auditors KMPG that was commissioned by Enemalta, claims Labour's proposal for a gas terminal and a new 200MW power station will raise energy bills by 5%.

The 11-page report, seemingly drawn up in one day to go by the terms of reference of the auditors, allegedly shows Labour's energy proposals will raise energy bills, and not reduce them as claimed by the PL.

According to KPMG, the average cost per kilowatt-hour will be 19c2 and not 9c6 as claimed in Labour's gas terminal proposal.

The report details that using Labour's proposed mix of 40% gas-fired 200MW power station, 40% Delimara plant, and 20% interconnector will cost on average 12c5 per kWh.

The report adds other assumed operating costs of €17.8 million; the special purposed vehicle rent of €21.4 million for 2013 alone; cap 8.4% of return-on-capital-employed inside prices; a higher return of 10.92% to the private investor that must build the power station and import the gas; as well as shipping costs for the liquefied natural gas and insurance costs.

The total would be €360 million in generation costs or 19c2 per kWh, for a supply of 1.8 million megawatt-hours.

The KPMG also says that compared to Enemalta's estimates for 2013, this average unit revenue tariff will be higher than the 18c3 per kWh that is being produced.

The report is prefaced by a lengthy disclaimer that says that "this presentation... has been prepared in accordance with our terms of engagement dated 14 January 2013" - the same day Fenech presented the findings of the report.

Enemalta assumptions

The presentation is based on the technical estimates of Enemalta's costs on energy generation, but instead adopts Labour's 40-40-20 energy mix.

KPMG states that it made "no attempt verify" the assumptions given to it by Enemalta.

These assumptions include an average usage of 200 cubic metres of natural gas for each MWh by the Delimara extension once converted;  172 cubic metres of natural gas for each MWh for the new power station Labour is proposing; and a price of 9c3 for each MWh from the Malta-Sicily interconnector.

Enemalta claims natural gas will cost $11.21 per cubic metre: a price worked out on October 2012 prices incremented by 15%. It also forecasts exchange rate costs, emissions costs of €8.36 million, equivalent to €3.89 per MWh generated, and direct generation costs of €67 million.

The report does not feature a comparison of unit generation cost between Enemalta's 2013 estimates, and the unit generation cost of Labour's proposed energy mix.

In the report, KPMG make it abundantly clear that their workings are based on Enemalta reports, as well as on meetings held with Enemalta management and engineers.

"We have indicated in this presentation the sources of information presented. We have not sought to establish the reliability of those sources," the report's extensive disclaimer reads.

"The scope of our work was different from that for an audit and, consequently, we do not issue any opinion or any other certificate or confirmation relating to the financial statements, tax position or the internal control systems of Enemalta Corporation."

"We have not sought to establish the reliability of this information by reference to sources independent of the Corporation," the report stresses. "Our reliance on and the use of this unaudited information should not be construed as an expression of our opinion on it."