‘Enemalta is no family silver’ | Konrad Mizzi

With its €840 million debt, the national energy corporation, Enemalta, has become a byword for liability, registering €50 million in losses every year, and making it indeed an albatross around Malta's neck.

Having mounted an incessant campaign against the hike in energy prices which the former administration foisted on the electorate in a bid to recoup the cost of Enemalta's fuel procurement, the new Labour government's plan for a new gas plant and LNG terminal is part of an ambitious quest to take the corporation from the red into the black. Konrad Mizzi, tasked with the portfolio of energy and water conservation, has been busy securing investments in Libya, Qatar and now China, in oil exploration, advantageous prices on oil products and a direct cash injection at Enemalta.

The coup that will be the part-privatisation of Enemalta is at first glance a sort of 'breach' in Labour's electoral programme: while the manifesto says no privatisation of Enemalta will take place, the government has now taken its first steps towards selling off a stake in the country's sole provider to a foreign country, albeit a lifesaver in the form of government-owned Chinese electricity company, China Power Investments Corporation.

The deal struck with the Chinese government has been met with contempt by the leader of the Nationalist Opposition, Simon Busuttil, who claims the deal raises doubts and questions. He echoed the Greens' claims that China Power wants a European toehold to sell its photovoltaic panels through a subsidiary which will be selling parts for assembly in Malta (as first confirmed by Joseph Muscat).

I ask Mizzi - only just arrived in Malta from Dalian, where he accompanied Muscat to the Summer Davos Forum - about the overnight change in the national energy landscape, from a 100% nationally owned behemoth - save for the liberalised LPG market - to one where 40% of electricity production will come from a privately owned gas-fired plant. The latter will also supply gas to the rest of Enemalta for 18 years, with the national corporation itself now allegedly 20% owned by the Chinese.

Mizzi refuses to "speculate" on the scale of the stake the Chinese want. It could be as high as 30% - which he doesn't deny. Early press reports suggested a €250 million stake. How much control of its energy is the island state set to lose?

Mizzi skirts the sovereignty issues artfully. "The reality is that Enemalta is owned by the banks," he says of the €800 million banking debt that the state guarantees. "With its hundreds of millions in debt, Enemalta is portrayed as a junk investment. If something radical is not done, if it is abandoned to its fate, Enemalta will fall directly into the shipyards' footsteps."

But still, it's a remarkable volte-face from claims by Finance Minister Edward Scicluna, who, in a quip about the Nationalists' privatisation programme of the 1990s, proclaimed that the "time of selling the family silver is over".

But Mizzi wryly chips in. "Enemalta is definitely no family silver in its current state. The company is debt-ridden and this deal will be an opportunity for Enemalta and the country to create an energy industry. It's obvious that China is not in it for charity but that it sees a huge potential in Enemalta's human resources and an energy generation plan which can prove to be profitable."

Mizzi says negotiations with Shanghai Electric Power, the subsidiary of China Power Investments Corporation, had been going on for about five months when the Chinese company approached Malta Enterprise expressing interest in investing in renewable energy. Over and above daily conference calls, two visits were held, with numerous and long meetings taking place between the company and the ministry, which eventually succeeded in convincing CPI to invest in Enemalta. "The ministry provided the company with information on the state of affairs of the state entity and discussed the three proposals which eventually transpired in the memorandum of understanding," Mizzi said.

I also broach the subject of whether the influence of his wife's Chinese family - speculation fuelled by the Nationalist media on numerous occasions - has played any part in securing such close relations. "My family connections had nothing to do with this," Mizzi says, adding that Shiv Nair - the British-Asian millionaire dubbed 'China's secret weapon in Africa' and now engaged as a Malta Enterprise consultant - was not part of this effort.

"China's interest is that Enemalta be turned profitable and act as an energy distributor," Mizzi says, pointing to government's plans that could involve the sale of electricity and energy to Europe.

While the development of the gas plant will address the generation of energy in Malta, the Chinese investment is expected to be channelled towards a hefty investment in its distribution system - one of the root causes of power cuts. "The Chinese investment is a minority stake in Enemalta. Government will remain in control," Mizzi says.

"I don't want to speculate on stakes and figures. The memorandum of understanding sets the principles, and over the next six months we will develop a business plan which is agreeable to both sides."

According to Mizzi, there was no "going behind the people's backs" on the deal, as Opposition leader Simon Busuttil surmised. "This was an agreement between two governments, where no intermediaries or third parties were involved. We will be fully transparent, referring to parliament the evaluation and explaining what the deal includes. We will keep all stakeholders updated, including workers' unions."

Mizzi also says the government will be tabling in parliament the Chinese memorandum of understanding.

With the leader of the Opposition expressing 'surprise' that it was a Labour administration that was taking Enemalta, a provider of essential services, towards partial privatisation, Mizzi declares his own surprise at the claim. "I find his comments ironic," he rebuts instantly. "The Nationalist administration spent six years working on a process in a bid to fully privatise Enemalta's petroleum division. It also privatised the public transport service. Aren't these essential services as well?"

The Chinese deal leaves out the petroleum division. Mizzi says the government is currently reviewing the process, as had been set out by the PN administration. A position on the matter, he says, will be taken in the coming months.

But traditionally, Labour has always been a vocal critic of the PN's privatisation programmes, which included the sale of the airport terminal, the liberalisation of public transport, the sale of the postal service and the sale of Mid-Med Bank. How does the Chinese deal figure in Labour's ideological manual? "I don't see a conflict. We are a party that is in favour of private investment and we believe such investment should be across all sectors. It also reflects an EU stand in favour of liberalisation."

He insists that this is one way of introducing a new, performance-oriented culture, the focus being on achieving and delivering results. "The Chinese's discipline will help us ensure that we get back to sustainability."

Taking a cue from Prime Minister Joseph Muscat's avowal that Malta was proud to have the world's second biggest economy as its strategic partner, Mizzi says several countries across Europe are soliciting investment from China. "The most important initiative of the memorandum of understanding is the setting up of an energy service centre in Malta which will serve the Mediterranean, African and the Gulf region. It will introduce advanced technology by investing in the training of current Enemalta employees, hire new apprenticeships and trained graduates."

Malta will also be providing Chinese workers with training in the English language. "I believe that the signing of the memorandum of understanding is the beginning of a long and mutual relationship that aims to create a win-win situation that would enable the creation of a regional energy hub in Malta. This agreement is being struck at the right time with the right partners."

Enemalta is also working on a business plan that will aim for the state entity to become profitable within three years. "The principles of the business plan will be discussed with our prospective partner over the coming months, but it will include aspects such as strengthening the distribution network and reducing technical losses. By March 2015, a new private gas-fired power station will sell its energy directly on the grid, while Delimara's phase two will be buying gas from this same private operator for at least 18 years."

Mizzi insists that the power purchase agreement and the gas supply agreement will provide price stability for five years - "something which can be found nowhere in Europe". After those five years, the government can review its purchasing agreement, including the option to start hedging at the market rate. It will also provide Enemalta with the possibility of selling electricity.

Mizzi is adamant that Enemalta couldn't have done this on its own: "The investment needed in its distribution is phenomenal."

The Chinese memorandum of understanding also includes the setting up of a joint venture between Malta and China to assemble photovoltaic units in Malta for sale in the European Union. But the joint venture has been seen as a way of allowing China Power Investments Corporation to get a firm foothold in the European market for solar panels, while the European Commission just negotiated tariffs on cheap Chinese PV panels that were undercutting the market. In fact, questions have been raised as to whether China was interested in Enemalta to circumvent anti-dumping rules.

Following six weeks of talks, the EU and China agreed to resolve a  dispute over the alleged dumping of solar panels by Chinese companies in Europe. As per the agreement, shipments from China - the world's dominant solar panel supplier - will be capped at 7GW per year, around half of the EU's 2012 demand of about 15GW. The deal also sets a minimum price for China's solar panel exports to Europe. Subsequently, the EU decided against imposing preliminary anti-subsidy tariffs on Chinese solar panels, opting to wait another four months to assess the industry.

"Neither us nor China have the intention of going against EU directives or policies. Solar panels will be assembled in Malta, but this doesn't make the product less Chinese, given that parts will be imported from China," Mizzi explains, insisting that the Chinese corporation's core business will always be the generation of electricity.

The assembly of solar panels is just the "supporting activity", and the interest lies in the generation of renewable energy.

The overhaul of the country's energy supply and distribution puts an end to procurement. But Mizzi is keen on highlighting that the power purchase agreement will provide the island with a security of supply.

"This is what Europe aims for. We will have diversification in our energy mix, with a gas power plant running efficiently and Enemalta improving its efficiency. The first five years, we will be provided a security of supply of 200MW at a fixed price, but after that we can start hedging with banks. In this sense, the pricing will be set according to the market rate."

Put simply, Malta's energy generation is split as follows: the gas-powered plant, which will provide 40% of the energy generation, and the rest split between the BWSC plant (currently running on heavy fuel oil) and the Malta-Sicily electricity interconnector. Eventually, Enemalta will have the opportunity to alternate between buying gas from the private operator (to run the BWSC plant on gas) and the interconnector.

The possibility of using the interconnector to potentially sell electricity back to Italy is also not being excluded.

But in 2011, Labour had promised that the BWSC extension would immediately shift to gasoil diesel from HFO, having pledged to start "the process to convert the Delimara plant, firstly to gasoil and subsequently gas" upon assuming power. With this original plan fully discarded, the Nationalist Opposition has accused the government of breaching its promise, "deceiving" the public. But Mizzi, who entered the political scene during the electoral campaign with Labour's plan for a gas plant, insists that throughout the campaign the PL said the transition would be made from heavy fuel oil directly to gas.

"Had we had the option of not going for a shift in such a short timeframe, I would have gone for gasoil. But to switch now would lead to several complications. With a limited number of tanks at Delimara, we would not have enough supply to clean up the tanks from HFO and stop generation from the phase one turbines. We would also have needed to keep the old plant at Marsa operating reliably, and we all know the significant problems we have there. From a logistical point of view, it would be hard to make a switch to gasoil, then to gas."

Mizzi reiterates that the government's energy is focused on the gas plan: "Thanks to our government, heavy fuel oil is going to disappear from our energy mix for good. With a Nationalist government, we would be lumped with HFO for 20 years."

But Labour had also conveniently dubbed the BWSC plant a "cancer factory". And now that the government no longer considers the shift to gasoil from HFO to be urgent, the Opposition has accused Labour of having "scared" voters unnecessarily, with Delimara's emissions under control.

Mizzi stands by the clumsy description of Delimara's threat. "There is a correlation between the use of heavy fuel oil and asthma. There is no questioning that gas is cleaner than HFO, meaning that a transition to gas would reduce emissions. It's a fact that HFO is dirty and those emissions lead to negative implications on people's health."

Mizzi also says a gas pipeline connection to Delimara would not be feasible without EU funding.

The new gas plant will be supplied with gas from a floating terminal, which in itself will require dredging, land reclamation and massive storage tanks or a ship permanently berthed to a jetty.

"A floating solution would be easier to replace as the ship simply sails away."