‘Guarantees for Electrogas security of supply necessary pending Commission green light’

The former permanent secretary Alfred Camilleri testified in the parliamentary public accounts committee as MPs continue hearing witnesses on the NAO inquiry into the Electrogas gas plant procurement.

Camilleri, a former finance ministry permanent secretary under both Nationalist and Labour administrations, answered questions over the course of two hours, justifying the work and role of the ministry in issuing government guarantees to private company Electrogas before they could secure permanent bank financing.

The main body of questions was centered around the guarantees issued by the State to Electrogas – first on an €88 million bridge loan, and later on a major €360 million loan.

The government guarantee was necessary for Electrogas to have security of supply until it achieved both permanent bank financing, as well as the European Commission’s green light on the security of supply financing – a matter of state aid that had to be cleared by the DG Competition in Brussels.

“Electrogas required bridge loans, until permanent financing was made available to the company. The government issued guarantees of up to 80% of the loan,” Camilleri said, noting that premium fees levied on these guarantees netted the State €11 million.

Camilleri said “an enormous team” was tasked with monitoring the milestones achieved by Electrogas as well as progress in obtaining private banking finance. He justified the State’s role in issuing the guarantee as part of an industry aid to support the development of the energy sector. “Agencies such as Malta Enterprise were always used to support industry. Today the Malta Development Bank supports industry by issuing guarantees for private industry, as we saw throughout COVID when private companies sourced banking guarantees from the MDB.”

Camilleri added that the risks of a government-backed government were not necessarily determined by the size of the guarantee, but to whom it was given. “My experience is that far smaller guarantees were riskier in some cases. That is why issuing such a guarantee is not to be taken lightly. The moment that guarantee has to be called in, the default is on the whole stock.”

Camilleri admitted he had reservations on issuing the guarantee. “I did go overboard. I have no regrets however. My reservations were that we usually issued guarantees on public entities. This time, this was a private entity. My fear was that if something happened, without additional safeguards, we would be exposed. Where were the risks? It was a big project that could have been replete with risks, such as delays, or other types of concerns. In this case, the risk that exposes you to a default of this size, was no joke. But I have no regrets on this matter – five years since then, there was no default on this guarantee.”

Camilleri says the government guarantee was suggested from the government’s side. “During tendering, a security of supply agreement was promised to the chosen bidder. Banks were aware of the financial history of Enemalta. This security of supply agreement was cleared by the State Aid Monitoring Board of Malta. When banks were presented with this approval, they demanded legal certainty through a ruling from the European Commission’s DG on competition. Until this EC approval was obtained, a security of supply agreement made the project bankable without stopping the development of the plant pending this decision.”

Camilleri spoke of Enemalta’s storied debt and credit rating agency downgrades before a first restructuring carried out in 2012, using the special purpose vehicle Vault Finance, and then further restructuring after 2013 when Shanghai Power Electric acquired one of the Delimara power generation units. Today, he said, the situation had come full circle with the government once again subsidising the rising price of energy.

Camilleri said he had taken measures to ensure the success of the guarantee by creating a contingency fund with enough money to pay out in the case of a default, with the State ready to take over the project from the private sector. Camilleri says no such risk ever took place thanks to close scrutiny of the project itself. “We monitored it diligently, on a daily basis.”

Camilleri also denied claims that Electrogas had defaulted on financing, answering a question from PAC chairman Darren Carabott on a social media missive published by journalist Matthew Caruana Galizia that included an email penned by Camilleri.

Camilleri explains this was not a default on the guarantee, but a default on agreements between the parties, mainly on loan agreements. “We were close to the deadline for the company to get its permanent financing, and banks were concerned about defaults. The default was not on the guarantee, because the bank was bound to inform us on the tiniest matter that could give rise to concern, but on the progress to achieve permanent financing. I then assured myself personally that there was no default on the guarantee. We took stock of the situation, and we came to the conclusion that the guarantee had to be renewed again, for Electrogas to achieve permanent financing; we got Cabinet approval, renewed it, and that is how we addressed the matter.”

Camilleri confirmed that Enemalta was reimbursing Electrogas for millions it pays in excise tax to the State utility on the generation of energy.

Towards the end of the PAC session, Camilleri took issue with questions from Carabott requesting him whether he had ever been in receipt of information from the FIAU over any investigations related to the Panama Papers.

Carabott asked Camilleri if the resignation of FIAU chief Manfred Galdes in 2016 was related to the power station. “No, I don’t know,” Camilleri said. He then denied that any information passed on from the FIAU to the police on reasonable suspicions of money laundering from Panama Papers data, had also reached his office. “No this communication was never made to me,” Camileri says. “The law precludes such information from the FIAU to be made available to us. Why are you asking me such questions?... This is a serious matter: there would be nothing that we as a ministry could know about the FIAU.”

15:50 Camilleri: “Government could never allow a state utility like Enemalta go bankrupt…” Matthew Vella

15:50 Other Labour MPs are asking Camilleri about previous debts and credit rating downgrades. Matthew Vella

15:47 Labour MP Alex Muscat asks Camilleri about previous debts at Enemalta prior to the 2013-4 restructuring. Matthew Vella

15:38 Camilleri says his working relationship with former energy minister Konrad Mizzi was “normal as with any other minister, no more no less.” Matthew Vella

15:35 Camilleri takes issue with the line of questioning. “This is a serious matter: there would be nothing that we as a ministry could know about the FIAU.” Matthew Vella

15:33 FIAU chief Kenneth Farrugia had said he had passed on a working document to the police on reasonable suspicions of money laundering from Panama Papers data. “No this communication was never made to me,” Camileri says. “The law precludes such information from the FIAU to be made available to us. Why are you asking me such questions?” Matthew Vella

15:32 Carabott asks Camilleri if the resignation of FIAU chief Manfred Galdes in 2016 was related to the power station. “No, I don’t know,” Camilleri says. Matthew Vella

15:31 Carabott had asked the finance minister in the House to explain payments to Customs from Electrogas on electricity generated in the plant. Has all the €11 million payable, been reimbursed? Yes, Camilleri confirms. Matthew Vella

15:27 Nationalist MP Graham Bencini asks Camilleri if Malta’s national tax revenues are down to an increase in population. Camilleri says “no, I don’t know. It is a political evaluation.” Matthew Vella

15:21 Carabott says Enemalta had paid some €40 million in excise tax that should have been paid by Electrogas. Enemalta reimbursed Electrogas on the €40 million excise tax that was payable. Effectively, this means the taxpayer paid for the excise that should have been paid by Electrogas. Matthew Vella

15:16 Darren Carabott shows Camilleri a published email, first issued by Camilleri to his aides in 2017, and then published by journalist Matthew Caruana Galizia on social media. Camilleri explains this was not a default on the guarantee, but a default on agreements between the parties, mainly on loan agreements; “we were close to the closure of the time for the company to get its permanent financing, banks were concerned about defaults. The default was not on the guarantee, because the bank was bound to inform us on the tiniest matter that could give rise to concern, namely on the progress to achieve permanent financing. I then assured myself personally that there was no default on the guarantee. We took stock of the situation, and we came to the conclusion that the guarantee had to be renewed again, for them to achieve permanent financing; we got Cabinet approval, renewed it, and that is how we addressed the matter.” Matthew Vella

15:12 Camilleri says he was unaware of a guarantee in 2015 issued by the energy ministry - when he was perm sec - and that he spoke about it to the finance minister, Edward Scicluna; “it was their (energy ministry) responsibility…” Matthew Vella

15:03 Camilleri says no such risk ever took place thanks to close scrutiny of the project itself. “We monitored it diligently, on a daily basis.” Matthew Vella

15:01 Was there any such other national project that generated the same level of risk? asks Mark Anthony Sammut (PN). “In terms of risk or guarantee… you are limited as to what you can control.” Matthew Vella

15:00 Camilleri says that when summing up the risks of such a guarantee, the action taken was that government would take over the project from the private company, apart from a contingency fund with enough money in the case of a default. Matthew Vella

14:53 Camilleri explains that although government guarantees in the past were never as large as the Electrogas, it was hard for any promoter of such a project not to expect that external financing back such a massive project. Matthew Vella

14:47 Camilleri says the government guarantee was suggested from the government’s side. “During tendering, a security of supply agreement was promised to the chosen bidder. Banks were aware of the financial history of Enemalta. This security of supply agreement was cleared by the State Aid Monitoring Board of Malta. When banks were presented with this approval, they demanded legal certainty through a ruling from the European Commission’s DG on competition. Until this EC approval was obtained, a security of supply agreement made the project bankable without stopping the development of the plant pending this decision.” Matthew Vella

14:40 For more on those past letters of comfort, an old MaltaToday story from 2011 here. Matthew Vella

14:39 Camilleri is now talking about Enemalta’s storied experience with so-called government guarantees. “Before 2013, there were many letters of comfort. We had downgrades from credit rating agencies. There was a lot of debt. In 2012, we restructured part of Enemalta’s debt by creating Vault Finance, hiving off part of the debt to be paid off by other entities. Today, we have Enemalta depending on government subsidies due to the price of energy.” Matthew Vella

14:37 Camilleri admits he had reservations on issuing the guarantee. “I did go overboard. I have no regrets however. My reservations were that we usually issued guarantees on public entities. This time, this was a private entity. My fear was that if something happened, without additional safeguards, we would be exposed. Where were the risks? It was a big project, that could have been replete with risks, such as delays, or other types of concerns. In this case, the risk that exposes you to a default of this size, was no joke. But I have no regrets on this matter - five years since then, there was no default on this guarantee.” Matthew Vella

14:35 Camilleri says decision-making on the Electrogas contract was a matter often decided by Cabinet-level decisions. “An enormous team” was employed to handle the guarantee for Electrogas. “Malta Enterprise was always used to support industry. Today the Malta Development Bank supports industry by issuing guarantees for private industry, as we saw throughout COVID when private companies sourced banking guarantees from the MDB.” Camilleri adds that the finance ministry had sought out many safeguards when issuing this guarantee: “the inherent risks of a guarantee is not its size, but to who you give it. My experience is that far smaller guarantees were riskier in some cases. That is why issuing such a guarantee is no light matter. The moment that the guarantee is used, there is a default on the whole stock.” Matthew Vella

14:30 Camilleri points out that the €11 million premium is registered by receipts to the Exchequer, and was also noted by the NAO. Matthew Vella

14:29 This premium is determined by an auditors’ methodology, in relation to international trends, Camilleri said. Matthew Vella

14:28 Electrogas required bridge loans, until permanent financing was made available to the company. The government issued guarantees of up to 80% of the loan being guaranteed by the government. The government then reaped €11 million on top of the guarantees it had issued to Electrogas, in the form of premium fees for having issued this guarantee. Matthew Vella

14:25 Government was guaranteeing €88 million on the bridge loan; in the case of the larger loan, it guaranteed 80, or €360 million. However, if any liability had occurred with a default, which did not happen, the exposure would have been larger, with fees, of up to €430 million. Matthew Vella

14:25 Camilleri is explaining the role of issuing government guarantees on public projects, such as the Electrogas plant. Matthew Vella

14:23 You can follow the hearing live here. Matthew Vella

14:22 He says the role of his office was limited to that concerning the government guarantee issued on the Electrogas project. Matthew Vella

14:22 Camilleri says his modus operandi as perm sec never changed under any administration, when asked by minister Andy Ellul. Matthew Vella

14:22 Asked about the role of his office in public procurement, he says decision-making panels such as evaluation panels on bids, were not within his remit. Matthew Vella

14:21 Alfred Camilleri, former perm sec at the finance ministry is testifying. Matthew Vella

The parliamentary public accounts committee convened in the middle of summer to continue its series of hearings into the National Audit Office inquiry in the procurement of the Electrogas power plant.

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Camilleri was a top civil servant who spent 16 years in charge of the government’s purse strings, under both Nationalist and Labour administrations. In his last year of employment, he remained in office to oversee a task force charged with getting Malta off the Financial Action Task Force greylist.

Camilleri was burnished by a reputation for having a tight grip on public spending, often having to be won over by ministers and various government appointees to secure financial backing for an initiative or project.