Muscat on OCCRP corruption dishonour: ‘Makes my life harder on due diligence matters’

Former prime minister Joseph Muscat refused to be drawn into political questions from the Opposition for his reaction to a public designation by the United States Department of Treasury against his former allies Konrad Mizzi and Keith Schembri over suspected corruption in the award of the Electrogas plant.

Muscat, who appeared for the fifth time in the public accounts committee discussing the findings of the NAO report into the Delimara gas plant tender, said he had no comment to make about the designation of his former energy minister and former right-hand man, respectively Mizzi and Schembri.

“Looks like the US government knows something that I don’t know about… but this happened in 2021, when I had already resigned. Do you think that if I ask the US government about third parties, I would be told?” he responded when PAC chairman Darren Carabott prodded him.

“I am not the prime minister. Why would Robert Abela make contact with me about this? Had the accusation been made about me, I would perhaps have expected the government to speak to me…”

Muscat insisted that any allegations made about government officials with respect to the procurement of the €200 million gas plant from Electrogas, were dealt with by the authorities. “It was not my role as prime minister to take such steps… I left it up to the authorities. Indeed, it was the FIAU’s reports on this matter that got leaked to the press…. the authorities were investigating, as the Opposition’s fanfare on the leaked reports show.”

Muscat resigned his role as PM and Labour leader in December 2019 following the arrest of Tumas boss Yorgen Fenech on charges of having masterminded the assassination of journalist Daphne Caruana Galizia – the accusation is that Fenech, a shareholder of Electrogas, wanted Caruana Galizai silenced. That same month, Muscat was designated as ‘Corrupt Person of the Year’ by the crime journalism consortium OCCRP. Speaking to the PAC, the former prime minister claimed the designation was an eleventh-hour ‘accolade’ made after an unspecified group’s lobbying with OCCRP. “It makes my life a bit more of a misery because I have to present my justifications for that mention every time I undergo some form of due diligence.”

Muscat once again mounted a regular defence of the procurement of the Delimara gas plant from the Electrogas consortium, specifying that state utility Enemalta had also, for the first time in years, registered profits throughout 2015 and 2018.

He said the winning consortium of Electrogas had a combined net asset value of €36 billion at the time of the tender award, far higher than procurement requirements and surpassing the negative net asset value that one its now former partner, Gasol plc, had at the time.

Muscat also said that Enemalta was at one point faced with the prospect of taking on the gas plant project, when costs for Electrogas had skyrocketed over delays in obtaining a security of supply and green light from the European Commission.

Muscat said Electrogas’s costs had ballooned from €350 million to €500 million over the purchase of storm-mooring equipment required for the floating storage regasification unit. The delays in negotiations reduced Electrogas’s internal rate of return (IRR) from 11% to 6%, risking its profitability. “Critics might say these are the problems of the consortium, not the government’s. But there was a do-or-die situation: either the consortium keeps going, or else stops, and hands over the project to Enemata, keeping the money it is owed.”

Muscat said Electrogas’s business model was pegged on making its money from the difference between the guaranteed and actual heat rate: a power station, like any machine, loses efficiency with higher temperatures, so the profitability of such a project was based on the difference between the guaranteed heat rate, and the actual heat rate.

“Enemalta had to either chose if it would take over the project or ensure bankability for Electrogas – the previous option would have required €500 million in public funds, and a management fee paid to Electrogas to run it, with Enemalta ending up paying the excise duty on the fuel anyway,” he said of the excise on fuel that Enemalta still pays for Electrogas as part of the deal.

Enemalta decided to pay the annual €2 million in excise duties for Electrogas annually, so that the private consortium could stabilise its IRR and ensure the project was bankable so that it obtains banking finance.

Muscat says Enemalta knew that while Electrogas could guarantee a 7% heat rate, the actual heat rate achievable was of 4.5%, so the state utility negotiated to have 10% of the realised profits on that difference, be paid back to Enemalta. “I have no access to the real-time figures, but my calculations are $2.2 million for Enemalta, which are reaped from the savings that Electrogas makes on that heat rate difference.”

Muscat added that even when the gas plant’s machines are fixed and rendered more efficient, Enemalta won the right to have the benefit of those efficiencies by resetting the heat conversion rates.

Muscat was also asked to precise his earlier claims in previous sittings as to the documentation supplied to the European Commission, in reaction to a statement from the Daphne Foundation.

Muscat said the Maltese government had entered into a separate agreement with one of the Electrogas consortium partners, Azerbaijani state company SOCAR, to retain its gas prices should the Electrogas consortium go bankrupt.

Muscat adds that government advisors Clifford Chance had said this agreement was separate to the documentation relevant to the state aid material that the European Commission had to vet, so this deal was never shown to the European Commission. “This agreement was an ‘insurance policy’ the government undertook to ensure SOCAR stay on board should the rest of the consortium declare bankruptcy, so that the government could keep procuring LNG from SOCAR.”

16:47 Adjourned. Matthew Vella

16:44 More information on the FOE stance on the gas pipeline can be found here. Matthew Vella

16:44 The PAC is back in session. Carabott says the vote he called was to admit a FOE witness; the vote in favour passed (because of abstentions from the government MPs) but a division was called. So now the PAC secretary now calls MPs by name to declare their voting intention. And as they say their ayes and nays, the vote does not pass. On their part, the government MPs want a ruling from the Speaker on whether a report unconnected to public spending should be discussed in the PAC. The report in question is called Towards a Fossil-Free Malta submitted by FOE Malta - the points listed refer to the LNG procurement and the transition from a FSRU to a gas pipeline. Matthew Vella

16:22 The PAC is suspended for five minutes. I think they will have the half-time oranges now. Matthew Vella

16:21 Labour MP Alex Muscat is requesting a ruling from the Speaker on the matter, because the vote deals with admitting a witness from FOE to discuss a report that might not be strictly tied to the remit of the PAC subject. Matthew Vella

16:20 Back to the PAC chairman... it is clear that the government MPs abstained during the vote he called to have the FOE report discussed. He says this record must be respected. Government whip Andy Ellul disagrees. Matthew Vella

16:18 Maybe they will bring out the half-time oranges... Matthew Vella

16:18 The government MPs are huddling in a corner... Matthew Vella

16:16 PAC chairman Darren Carabott says it is ridiculous that the MPs have spent 20 minutes bickering when a witness could have been called to testify. Matthew Vella

16:15 Now the debacle is that the Opposition insists that when they voted in favour of having the FOE report discussed, the government MPs did not vote against... and so a division was called. Labour MP Alex Muscat claims he interjected in the middle of that vote, but Nationalist Whip Robert Cutajar says nobody can stop a vote once it is called. Matthew Vella

16:13 Andy Ellul: “You really have no shame behaving this way before our television public…” I am ready to hazard that nobody except this MaltaToday journalist might be following the tribulations in this PAC... Matthew Vella

16:11 The government MPs want a ruling from the Speaker on whether the FOE report can be discussed in the PAC... Matthew Vella

16:10 And this debacle will be solved by the government MPs now calling for another vote... Matthew Vella

16:10 Political bickering and taunting... over whether a government MP now voted together with the Opposition on whether the FOE report should be discussed... Matthew Vella

16:07 Labour MPs want the advice of the Speaker on the whether an FOE report on gas, can be discussed in the PAC. Matthew Vella

16:06 If you are still following the exchange of ideas... MPs in the PAC are debating over a vote on whether an FOE report on gas, should be now discussed by the committee. Matthew Vella

15:57 In an aside, now dealing with a report tabled to the PAC on the environmental consequences of gas-fired power stations and pipelines from Friends of the Earth Malta, brings forward an important observation by Nationalist whip Robert Cutajar that the parliamentary environment committee has no right to discuss such report. The committee can only discuss matters dealing with the local plans. The Opposition will be presenting a motion to amend the rules of this committee. Matthew Vella

15:52 Nationalist MP Graham Bencini files a request to have the official heat rates registered by the Delimara plants from commissioning of the new plant, to date. Matthew Vella

15:52 Testimony for Joseph Muscat ends here. Matthew Vella

15:51 A comment by Muscat that a study or audit should be conducted on how the Electrogas procurement has improved families’ lives sparks a bitter debate between PAC MPs. Now he is reading off the losses in millions of Enemalta from 2009 onwards: millions in losses from one year to the other right up to 2014, starting then with €19.6 million and €47m in 2015 and 2016; a loss of €4m in 2019 and a loss of €12m in 2020. “You cannot simply speak of losses that Enemalta made in one single year… I believe Enemalta made losses since the 1980s except for the years between 2015 and 2018.” Matthew Vella

15:39 Muscat says his OCCRP designation as ‘corrupt person of the year’ in 2019 was an eleventh-hour ‘accolade’ made after lobbying by a group of people. He does not specify who. He says the dishonourable mention “makes his life a bit more of a misery because he has to present justifications for that designation every time he undergoes due diligence.” Matthew Vella

15:35 Muscat says he never received any information “condemning” Mizzi and Schembri in the same manner as alleged by the US government in its travel ban designation against the former two government members. Matthew Vella

15:33 Labour MP Glenn Bedingfield, half-jokingly or not, asks Carabott whether a USG representative should be be asked to testify. Matthew Vella

15:33 Carabott asks whether the Maltese government made any contact with Muscat about the accusations. Muscat: “It is a sign that the US Government knows something that I don’t know about… this happened in 2021, when I had already resigned. Do you think that if I ask the US government about third parties, I would be told? I am not the prime minister. And why would Robert Abela make contact with me about this? Had the accusation been made about me, I would perhaps expected the government to speak to me…” Matthew Vella

15:30 Carabott now references the banning of travel to the USA meted out by the US government to former energy minister Konrad Mizzi and former chief of staff Keith Schembri, on suspected corruption in the Electrogas procurement. You can find the story here. Matthew Vella

15:27 Carabott asks Muscat whether he had ever taken any steps on the allegations made on the Electrogas procurement. Muscat says that while this is not within the PAC’s remit, he says that it was not his role to take such steps but that it was up to the authorities. “Indeed, it was the FIAU’s report on this matter that got leaked to the press…. The authorities were investigating, as the Opposition’s fanfare on the leaked reports show.” Matthew Vella

15:23 Carabott asks why the Clifford Chance advice was also not forwarded to the EC as part of the security of supply agreements. Muscat says it is likely that the advice was part of the entire advice CC was giving on the state aid package, and as such was not necessary to the EC’s purview. Matthew Vella

15:20 Muscat addresses the claims made in the statement. “This agreement was between the Maltese government and the Azerbaijani state company, which was not part of the consortium agreements, but an ‘insurance policy’ the government undertook to ensure Socar stay on board should the rest of the consortium declare bankruptcy, so that the government keeps procuring LNG from Socar. This advice was from the Clifford Chance consultants. This advice was not part of the agreements under the purview of the European Commission, because it concerned the Maltese government and SOCAR.” Matthew Vella

15:16 Carabott refers to the Daphne Foundation statement accusing Muscat of misleading the PAC on his testimony, referring to correspondence from the European Commission saying that while Brussels was aware of the possibility of a Security of Supply Agreement, they were not notified of its existence or its content, as Muscat implied in his testimony. The Commission said possible agreement between the Government of Malta and Socar was not part of the notification to the Commission and was therefore not assessed in the Commission’s decision. Matthew Vella

15:00 Muscat says that, as provided for in the agreement with Electrogas, Enemalta would have had to step in to take over the project should Electrogas decide to pull out. In such case, Enemalta’s finances would have been placed under strain and that such financing could only be obtained through a government guarantee. Matthew Vella

14:59 Muscat is asked at what point was Enemalta considering to take the project in its hands. The former PM says it was at the time that the European Commission was vetting the project before it could obtain its security of supply agreement. “At that point, capital expenditure shot up by 80%,” Muscat says. Matthew Vella

14:57 With Muscat now asked to leave the room, the PAC is discussing with the Auditor General the costings of the heat rate profitability referred to by Muscat. Matthew Vella

14:51 Muscat says the savings model of the Electrogas, based on the heat conversion rate, means 10% of this is paid out to Enemalta. The heat rate then is reset every time the machines are fixed or resetting, which itself delivers a more efficient rate for the machine. Muscat said this factor was taken into consideration so that Enemalta could benefit from this renewed efficiency factor. Matthew Vella

14:45 The second option was to enter into discussions: here Enemalta agreed to pay the €2 million in excise duties every year, to help Electrogas stabilise its IRR and ensure that the project was bankable so that the consortium could access banking finance. Muscat says Electrogas said it could guarantee a 7% heat rate, but that Enemalta knew that the actual heat rate was around 4.5%: so Enemalta negotiated that 10% of those profits (the difference between the heat rate) are paid back to Enemalta. “I have no access to the real-time figures, but my calculations are $2.2 million, which are reaped from the savings that Electrogas makes on that heat rate difference.” Matthew Vella

14:44 Muscat says the Electrogas business model was pegged on making its money from the difference between the guaranteed and actual heat rate: a power station, like any machine, loses efficiency with higher temperatures, so the profitability of such project was based on the difference between the guaranteed heat rate, and the actual heat rate. Enemalta had to either chose if it would take over the project or ensure bankability for Electrogas - the previous would have required €500 million in public funds, and a management fee paid to Electrogas to run it, with Enemalta ending up paying the excise duty on the fuel anyway. Matthew Vella

14:43 Muscat says the costs of the Electrogas plant had ballooned from €350 million climbed to €500m due to the storm-mooring equipment required for floating storage regasification unit. Electrons had at this time lost its rights to the FSRU’s chartering as talks dragged on, and risked raising more costs due to the length of talks, reducing its internal rate of return (IRR) from 11% to 6%. “Critics might say these are the problems of the consortium, not the government’s. But there was a do-or-die situation: either the consortium keeps going, or else stops, and hands over the project to Enemata, keeping the money it is owed.” Matthew Vella

14:35 Muscat now turns to clarifications on excise duty paid by Electrogas. He says his explanation will take 10 minutes. Matthew Vella

14:34 Muscat says that even if Gasol had a negative NAV at the time, this would have had no impact on the combined NAV of the consortium, which is what had to be taken into consideration in terms of the procurement. Matthew Vella

14:34 Muscat starts with clarifications on his previous statements, referring to the net asset value of Gasol plc, a former partner of the Electrogas consortium. He says the consortium in 2013 had a combined NAV of some €36 billion - this is as an observation beyond his previous convictions that Gasol had a positive net asset value in the years preceding 2013. Matthew Vella

14:27 Muscat is accompanied by long-time aide Mark Farrugia. Matthew Vella

14:26 Former Labour leader and prime minister Joseph Muscat asked to enter the PAC room. Matthew Vella

14:26 Carabott refers to a statement from the Daphne Foundation, which has been reported here on MaltaToday. Matthew Vella

14:17 PAC chairman Darren Carabott begins proceedings in the PAC saying that Enemalta has so far not responded to a series of questions it sent to the state company. Carabott says he will summon Enemalta CEO Ryan Fava to return to the PAC for questioning if he does not furnish the committee with the clarifications requested. Matthew Vella

14:15 Good afternoon - the PAC is back in session with Joseph Muscat, former prime minister, to be summoned for questioning. Matthew Vella

Muscat has so far provided a staunch defence of Labour’s chief policy plank in 2013, which led to the commissioning of a €200 million gas plant from Electrogas, a consortium of Maltese business groups, the Azerbaijan state gas company Socar, and German multiational Siemens.

Muscat in Electrogas PAC: Caruana Galizia inquiry factually incorrect over project

[WATCH] Muscat mounts strong defence of Electrogas contract

[WATCH] Muscat parries with Carabott as former PM is needled over Keith Schembri

Electrogas’s shareholders included the Tumas business group and its CEO Yorgen Fenech, now accused of having masterminded the assassination of journalist Daphne Caruana Galizia in 2016, largely over revelatory reports concerning Fenech, the Electrogas plants and its dealings with the government, as well as a secret business connection with Muscat’s then chief of staff Keith Schembri, through the use of offshore companies.