[WATCH] Muscat mounts strong defence of Electrogas contract

Former Labour prime minister Joseph Muscat mounted a convincing defence of his government’s key policy plank, the switch-over to gas and a 25% cut in energy prices, in a grilling by MPs in the public accounts committee over the NAO’s report on the Electrogas contract.

Muscat started off the session with a 40-minute, pre-emptive riposte on various questions raised with previous witnesses, denying any suggestion that Labour had engineered the €200 million gas plant contract to go the way of Electrogas, whose shareholder included Yorgen Fenech, the Tumas magnate accused of masterminding the assassination of journalist Daphne Caruana Galizia.

Muscat told MPs it was evident that Maltese voters were extremely sensitive to energy prices, saying both Labour in 1998 and the Nationalists in 2013 lost power on the back of energy hikes.

He said it was in 2011 that Labour started aiming for a 25% reduction in energy bills, through the switch-over to gas – a prospect already laid down in the national energy policy issued under a Nationalist administration in 2006, but which was ignored when it procured a BWSC turbine powered by heavy fuel oil.

He denied that he had been lobbied by businessmen on a future gas plant. He referred to Paul Apap Bologna, with whom he met some three times, saying they had discussed medicines shortages; and Tumas magnate George Fenech, with whom he discussed the prospect of the Arriva public transport system his company was invested in.

He said it was the Nationalist administration that had been lobbied by private companies to switch over to gas. “On the surface, the opposition to this seems this was because the gas turbines were too expensive, and that Enemalta could not afford it. Our innovation was introducing a private partner that removed the burden for the State,” he said.

He later likened his privatisation idea for energy, as akin to the Nationalist administration’s outsourcing of elderly care to the private sector. “The economies of scale on sourcing fuels and the know-how needed to run a gas plant, are costly for a small country like Malta.”

Muscat says an MOU signed internally by Labour while in opposition with Energy World, was a non-binding agreement to underline the feasibility of being able to forge ahead with a gas plant and guarantee lower energy bills. “This company did not even win the Delimara contract, having itself contested the award of the contract to Electrogas,” Muscat said, pointing out that the NAO had found the elimination of this company, justified.

“I am here to defend this project… not the barbarous murder (of Daphne Caruana Galizia)… without this project this country would not have recovered economically,” he told MPs.

After 2013, Muscat says that – compared to the opacity on the BWSC tender under the PN administration – the Delimara gas plant attracted 13 bidders, evaluated transparently, underwritten by international banks like Societe General, BNP Paribas, HSBC International, BOV, and Nataxis, and even vetted by the European Commission. He said this private element was necessary in the switch-over to gas because Malta in 2013 was under the EC’s excessive deficit procedure, and the State could not finance the project itself.

Muscat denied meeting any businessman after 2013 to discuss the Delimara contract. “The only interface were emissaries from foreign governments or ambassadors, who tried to lobby in the favour of their countries’ companies’ interests in the tender. These were the advances we had.”

Muscat said that once Electrogas was awarded the tender, under EU rules the government had to forge a security of supply agreement binding the State to buy energy from Electrogas should the State utility Enemalta go bankrupt and be unable to acquire electricity from Electrogas.

“That security of supply agreement was dependent on the European Commission’s green light, so until that approval was issued, the government took a calculated risk to issue a temporary guarantee for Electrogas, up until the EC clears the security of supply agreement… Electrogas paid €12 million to the State for this guarantee,” Muscat said.

He said the State also created a security of supply agreement with Electrogas partner SOCAR, the Azerbaijani state oil company, to force the company to sell its stake to the government should it fall out with Electrogas. “All these agreements have since then been revoked.”

He said it was MP Joe Debono Grech, then a Council of Europe PACE member reporting on Azerbaijani relations, who alerted him to the advantages of tapping the gas-rich nation’s resources. “He said it would be just like China had been for Mintoff… today EC president Ursula von der Leyen describes Azerbaijan as a trustworthy partner, not a corrupt nation. We were first in line.”

Muscat said the State pays Electrogas’s €2 million in annual excise taxes, because it extracted €30 million up front from the company in 2014 to immediately reduce energy bills by 25%.

He also insisted that while the Malta-Sicily interconnector’s capital cost was probably €20 milion less, this did not take into consideration its depreciation. Today we know that in the last five years, we know that when compared with the interconnector – on which the success of the gas plant also depends, because they are interdependent – Malta would have had to pay over €150 million without the gas plant.”

Muscat also credited disgraced former energy and health, and tourism minister Konrad Mizzi as a project manager for government projects whose promising political career had been cut short. “He is the most competent person in project management and the gas plant was question of project management more than energy,” he told the PAC.

Appointing Mizzi as minister for health was a good decision, too, he told MPs, because he had found solutions for Malta’s shortage of medicines problem.

But was he a transparent operator, PAC chairman Darren Carabott asked? “He could have been more transparent… it is a pity that a man of his capability had to end his career in politics,” Muscat said, referring to Mizzi’s role in the Panama Papers.

Muscat also said his former finance minister Edward Scicluna’s comment about the former PM having a ‘kitchen cabinet’ had been entirely misquoted. “I had different groups of advisors on various subjects, like health or education…”

16:01 Muscat will probably return to testify in the PAC next Tuesday at 2pm. Matthew Vella

16:00 Muscat credits Mizzi as having solved Malta’s medicine shortages situation, and reduced energy bills; he says Edward Scicluna has been totally misquoted over his ‘kitchen cabinet’ comment and says he had different groups of close advisors on various sectors, such as health or education. Matthew Vella

15:58 Muscat is referring to the Panama Papers. Matthew Vella

15:58 Muscat insists it was a good decision for him to give Mizzi the health portfolio. Was he transparent, Darren Carabott asks? “He could have been more transparent… it is a pity that a man of his capability had to end his career in politics.” Matthew Vella

15:49 In 2016, he retained Mizzi as minister without portfolio within the OPM due to the Panama Papers, and returned him as minister in 2017 with Projects Malta under his purview, because he said the government needed a project manager. Matthew Vella

15:48 He then says he adapted Mizzi’s skills in project management in the field of health. Matthew Vella

15:48 Muscat describes Konrad Mizzi as the most competent person in project management – “he was the most competent… and this was a question of project management more than energy,” he tells the PAC. Matthew Vella

15:36 Muscat says Maltese consumers are extremely sensitive to energy prices: he says Labour in 1998, and the Nationalists in 2013 both lost power during energy hikes. Matthew Vella

15:31 Muscat denies meeting anyone after 2013 to discuss the Delimara contract; “the only interface were emissaries from foreign governments or ambassadors, who tried to lobby in the favour of their countries’ companies’ interests in the tender. These were the advances we had.” Matthew Vella

15:27 Muscat excludes meeting anyone who spoke about the proposed Delimara contract; but Muscat says he met Apap Bologna some three times about medicines shortages. Muscat says any relations he had with Tumas magnate George Fenech never touched upon discussions on Electrogas – they were on Arriva, the bus service that Fenech was invested in. Matthew Vella

15:20 More on Debono Grech and the Azeri connection here. Matthew Vella

15:18 Muscat likens the use of private partners to finance the Delimara gas plant, to the Nationalist practice of outsourcing elderly care to private contractors and homes. “The economies of scale on sourcing fuels and the know-how needed to run a gas plant, are costly for a small country like Malta.” Matthew Vella

15:14 Muscat says it was former MP Joe Debono Grech who pointed out Azerbaijan as the go-to country for energy resources. “He said Azerbaijan was like China was for Mintoff… today Ursula von der Leyen describes Azerbaijan, not as corrupt, but as trustworthy partners. Malta was first in line for Azeri gas.” Matthew Vella

15:13 Question from Andy Ellul on EC’s approach to Azerbaijan to buy gas. Matthew Vella

15:11 Muscat says a senior civil servant, in his first meeting with him in 2013, was sceptical of Labour’s capability of reducing energy prices due to Enemalta’s precarious financial state. “There is no one administration to blame, but a litany of decisions lacking creativity and innovation that just made the situation at Enemalta worse than before. A key turning point was the Chinese investment, that gave credit rating agencies a sign that this private company could support the power plant, in the process paying over €300 million for the plant.” Matthew Vella

15:03 Muscat: “I am here to defend this project… not the barbarous murder (of Daphne Caruana Galizia)… without this project this country would not have recovered economically.” Matthew Vella

14:58 Muscat says banks like Societe General, BNP Paribas, HSBC International, BOV, Nataxis, and other banks and funds, agreed to finance over €500 million in pledged tenders for the Delimara plant. Matthew Vella

14:50 The interconnector’s capital cost was €20 million less, Muscat says, although the calculation does not factor in the depreciation of the interconnector. “Today we know that in the last five years, we know that when compared with the interconnector – on which the success of the gas plant also depends, because they are interdependent – Malta would have had to pay over €150 million without the gas plant.” Matthew Vella

14:47 Muscat says the five-year fixed price for Electrogas came with a reduction of an initial 18-year contract to 10 years, with plans to shift again to a pipeline to source gas (rather than the LNG tanker), with an option for Enemalta to take over the gas distribution facilities. Matthew Vella

14:45 Muscat now answers as to whether Enemalta is paying Electrogas’s €2 million annually in excise taxes? Yes, he says. “Electrogas paid €30 million up-front, to use immediately to reduce energy bills right away.” Matthew Vella

14:42 Muscat turns to a security of supply agreement with SOCAR; “the Cabinet approved a deal… to cover the prospect that should SOCAR and Electrogas fall out, the Azeri company would mandatorily have to sell out to the Maltese government. All these agreements have since then been revoked.” Matthew Vella

14:41 Muscat: Electrogas paid €12 million for this government guarantee. Matthew Vella

14:40 Muscat: The security of supply agreement was dependent on the European Commission’s green light, so until that approval was issued, the government took a calculated risk to issue a temporary guarantee up until the EC clears the security of supply agreement. Matthew Vella

14:38 Muscat turns to the security of supply agreement, and the government’s temporary guarantee for Electrogas: “they are two separate matters altogether.” The SoS is an Enemalta-government agreement that binds the Maltese government to buy energy from Electrogas should Enemalta goes bankrupt. Matthew Vella

14:34 Muscat says that in 2013, Malta was under the EC’s excessive deficit procedure, and could not finance the project itself, requiring a private partner to finance the gas plant. Matthew Vella

14:32 Muscat refers to the NAO report on the BWSC turbine (under the PN administration). He says the procurement was entirely different from the one in the Delimara contract, which attracted 13 bidders, evaluated transparently, and even vetted by the European Commission. Matthew Vella

14:26 Muscat categorically denies any type of discussions on the Delimara contract with either the Fenech or the Apap Bologna business groups before the award of the gas plant project. “Konrad Mizzi was not involved in the coordination of the manifesto, which was led by Louis Grech and James Piscopo. Mizzi was involved in the energy section… we employed foreign consultants Kema for an independent report on our gas plant, having also participated in our presentation, by way of ‘auditing’ our project.” Matthew Vella

14:24 Muscat points out that NAO had found the elimination of the MOU company, justified. Matthew Vella

14:24 Muscat says Labour signed an MOU with a businessman, who he refuses to name without their express permission, based on two lines: “We knew we would be criticised on the feasibility of the gas plant, so we wanted to know we had a company that was capable of delivering this; and we wanted to have an example of best practices that showed it was possible to deliver a 25% cut in energy prices. This company did not even win the Delimara contract, having itself contested the award of the contract to Electrogas.” Matthew Vella

14:22 Muscat now refers to the question as to whether Labour was in agreement with Electrogas before 2013 to hand it the Delimara contract. “From 2011 to 2013, the Nationalist Party insisted Labour’s proposal was impossible to implement, that we could not convert Delimara to gas, or that Enemalta was a bankrupt entity; the attack then changed to claims that Sargas’s carbon-capture method, a company presented to the PN administration of the time by minister John Dalli, was that they would be procuring the new Delimara plant.” Matthew Vella

14:18 Muscat refers to the NAO report (whose findings are under consideration) which explicitly states that the need for a new energy source and generation was necessary for Malta. “It puts at rest as to whether there was the need for a new power station,” Muscat says. Matthew Vella

14:17 He says various lobbies approached the Nationalist administration of the time to consider switching over to gas – he refers to Paul Apap Bologna’s testimony to the PAC – but found no interest. “On the surface it seems this was because the gas turbines were too expensive, and that Enemalta could not afford it. Our innovation was introducing a private partner that removed the burden for the State.” Matthew Vella

14:16 Muscat says that after the PN first committed itself to switch over to gas in its national energy policy in 2006, it still proceeded to procure a new Delimara turbine that would be powered by heavy fuel oil. Matthew Vella

14:14 Muscat says renewables do not provide enough critical mass for energy production in Malta due to limited land issues (although he does not mention offshore wind production potential). Matthew Vella

14:14 Muscat starts off with answering as to the origins of the gas plant proposal that was the hallmark of Labour’s 2013 election bid. “Our aim had been to reduce energy bills by 25%, without any government subsidies, sustainably, and to reduce air pollution through the closure of the Marsa power station and the switchover from heavy fuel oil to gas. The alternatives to HFO were simple: gas, nuclear, renewables, or the interconnector. Our solution was an energy mix of gas – the least polluting fossil fuel – the interconnector for security of supply, and renewables.” Matthew Vella

14:10 Muscat is sworn in, and requests a 20-minute allowance to make his initial representations. Matthew Vella

14:09 Former PM Joseph Muscat is in the PAC committee room, together with his personal assistant, Mark Farrugia. Matthew Vella

14:09 Welcome to this live blog... Matthew Vella

Muscat, a beleaguered former politician under pressed over a magisterial inquiry into how he privatised three state hospitals to unknown businessmen, is expected to mount a convincing defence of Labour’s key policy plank from 2013.

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It was his promise to reduce electricity bills by 25% at a time of rising oil prices by converting the Delimara power station into a gas-powered plant, that propelled him to power.

The promise was kept and to this day, Labour administrations subsiside energy prices in the face of rising gas costs.

But the Electrogas contract was marred by accusations of corruption, notably due to the presence of Yorgen Fenech, one of the shareholders and magnate in the Tumas Group, who now stands accused of masterminding the assassination of Daphne Caruana Galizia.

Schembri short-circuits PAC hearing over perjury complaint as testimony is suspended

Crucially, Caruana Galizia revealed in 2016 the existence of secret Panama offshore companies belonging to Muscat’s right-hand man Keith Schembri, and then energy minister Konrad Mizzi. After her assassination in October 2017, a year later it was revealed that these companies had identified a secret Dubai company called 17 Black as a “target client” – that company belonged to Yorgen Fenech, and it was linked to other beneficiaries such as Azeri officials in SOCAR, the Azerbaijani state energy company that is part of the Electrogas consortium.

Fenech was not sworn in to testify when appearing two weeks ago in the PAC, due to his ongoing trial for the murder of Caruana Galizia.