The National Audit Office has expressed reservations over a hedging deal worth millions struck with an Azerbaijani energy company last year, saying it had not been able to determine the extent of “ministerial direction” exercised.

In a report obtained by this newspaper, the NAO said it had not been given enough documentation on the deal and this detracted from the accountability of the process and was a shortcoming in terms of governance.

The hedging agreement was signed last year between Enemalta and State-owned Socar. The Azeri company has a 20 per cent shareholding in Electrogas, the consortium contracted by the government to develop a new gas-fired power station in Malta.

The NAO said the documentation on the final approval of the deal issued by the Enemalta Petroleum Committee and the subsequent placement of orders with Socar Trading SA was “incomplete”.

People need to know why Mizzi intervened personally in the purchase of oil

The PN jumped on the NAO’s report last night, accusing Energy Minister Konrad Mizzi of being personally involved in the purchase of oil, saying “this stinks”.

Dr Mizzi denied interfering in the process, saying his direction was limited to asking Enemalta to look at possible hedges with Socar to keep fuel prices down.

The report also criticised Enemalta for not having a formally documented hedging policy against which it may set its strategic orientation.

On a positive note, the NAO noted significant improvement in terms of the Advisory and Finance Committee (AFC), saying it had been continuously monitoring oil and foreign exchange markets. Even during periods of inactivity the committee members were still monitoring developments.

Questions about the Azeri company had already been raised last December, when it emerged that Malta had signed a memorandum of understanding with Socar during a visit by the Prime Minister and Dr Mizzi to the capital, Baku. The government never disclosed the contents of the MoU.

The Auditor General was requested by the Opposition to investigate the hedging activity undertaken by Enemalta corporation in 2014.

The NAO expressed reservations on the manner in which the decision to hedge unleaded petrol and diesel for the third and fourth quarters of last year had been taken. It noted that minutes of the petroleum procurement committee of April 3, 2014, simply said that the deal had been concluded following “ministerial direction”.

‘Papers on approval of the deal incomplete’

In spite of a review of the emails exchanged with the AFC and the clarifications made by the energy minister and the then Enemalta chairman, the documentation was “incomplete”.

“This rendered it impossible for the office to determine the extent of ministerial direction exercised and responsibilities assumed by the AFC,” the NAO said.

In his initial reaction Opposition leader Simon Busuttil yesterday tweeted that this was yet another damning report by the NAO, following that of the €4.2 million Café Premier deal. This ‘ministerial direction’ “stinks”, he said.

The PN said the government had a lot to answer for owing to “the direct involvement” of Mr Mizzi in the purchase of oil from Socar.

“People need to know why Mizzi intervened personally in the purchase of oil, and if this was with the Prime Minister’s blessing.”

This rendered it impossible for the office to determine the extent of ministerial direction exercised

The government welcomed the fact that the NAO had noted improvements in the hedging procedures, and that in the majority of cases decisions reflected the recommendations given by Enemalta’s risk management committee. However, it acknowledged that some documentation was not complete.

Mr Mizzi last night denied ever having influenced decisions or having any direct intervention to clinch a deal with Socar.

His direction was limited to telling Enemalta to stay in the market for a better deal and look at possible hedges with Socar, as otherwise there would have been a 2c increase in fuel prices.

This direction was in line with the government’s pledge to keep prices stable and low, he said, and his involvement stopped there. He pointed out that thanks to this agreement, the petrol price had gone down by 2c and diesel had remained stable.

While affirming the improvements in the hedging process noted by the NAO, Mr Mizzi said the government had taken note of the shortcomings highlighted and would address them.

From the NAO’s report it also emerged that in 2014, Enemalta lost €8.6 million on hedges on crude oil and €5.5 million on unleaded petrol and diesel.

The significant market improvement registered in the three last months of the year, which the report said “were not and could not” have been anticipated, were to blame for this.

On the other hand, the corporation registered a gain of €8 million in terms of foreign exchange.