I had started writing this article about the shenanigans surrounding the production and sale of Malta’s energy supply several times but never sent it to be published.
I have changed my decision to remain silent, prompted by the recent revelations concerning undisclosed transactions, redacted contracts, long-term gas supply contracts from undemocratic regimes and secret Panama and Dubai accounts now known to have been opened by government officials and a member of the consortium involved in the transactions, with promises to transfer given amounts well into the future.
I was involved in Malta’s energy sector between 1996 and 2008, as director and head of the European Affairs office of the main supplier of Malta’s power station. I would like to share what I know and can deduce through my training as an internal auditor with a big multinational company between 1975 and 1985, as well as from my experience as head of the European Government Affairs and Legal Services of General Electric. I was involved with numerous cases of transfer asset robbery and of bribery of foreign officials, investigated and punished around the world.
The Delimara power station was bought by the Maltese government before Malta joined the EU, using the European funding programme run through the financial protocol with the Italian government. General Electric won the tender to develop, build and install it. The plant came into operation in 1994 and served Malta well for many years.
The plant was planned to be built and run on fuel oil but the design allowed it to be doubled in size by the addition of a second turbine, with space reserved for an extension. The plant and its second turbine were also built to specifications that would allow an easy transformation from fuel oil to gas.
What should have happened was a transition from fuel oil to gas and the closure and mothballing of the 100-year-old Marsa power station. That this plan was never followed remains shrouded in mystery and has caused me consternation. It has left me highly suspicious that all was not correct. Something was rotten in the way subsequent Maltese administrations dealt with the energy issue.
The previous administration procrastinated and failed to transform the existing turbines to gas. And when extra power requirements were called for because of the growth of the economy, it chose a policy direction other than the gasification of the existing plants to double capacity. Instead it went for an interconnection with the mainland grid and bought a set of smaller diesel turbines that ran on heavy fuel. The BWSC project came on stream in 2012 and the interconnector in 2014.
An interconnector is a good thing because it provides extra security were our stand-alone system to break down. It also allows Malta to buy energy from sources like nuclear, hydro, wind, solar, coal, fuel oil or gas-fired stations around Europe at prices much lower than our own power stations can ever reach.
European systems are built around larger turbines and are run by companies that own several turbines, so they are able to spread their costs on much larger volumes and can sell energy at much lower prices. The European grid allows buyers of electricity to select the going prices on the open market, as low as 3-6 cents or as high as 15-17 cents per KWH.
As I look at my own bills here in Malta and compare them to the bills I receive for my other properties in Sweden and Germany, as well as for the rented flat I had lived in when I was in Belgium, I see that the Swedes and the Belgians pay around 4-6 cents per KWH, the Germans 22.30 cents and in Malta I pay an average of 30 cents per KWH, based on the mix of low price at 11 cents and high price bands at 60 cents.
Part of these higher Maltese prices can be explained by the size of the local market and the overheads required to manage and run the production and distribution of electricity. Yet, the difference is too large to be explained away. There must be another reason.
Why did Malta enter into such an agreement, so loaded in favour of the seller?
Recent events have drastically changed the picture. The number of red flags that appear in the events that took place since the election of 2013 indicate that, instead of being able to charge the consumer an average based on the going interconnector price and the production costs of the local power stations, which would be something in the region of 15-20 cents per KWH, we are being charged double that amount.
Why has this happened?
My professional experience tells me that the policy changes made in the years 2006-2012, when the gasification and extension of Delimara was shelved and the interconnector and BWSC plants chosen, was one cause. This was a policy and political decision that can be discussed and questioned, but it changed the pricing of energy.
The second and much more serious reason for causing the price of energy to remain 10 times that of Sweden and 50 per cent higher than Germany’s (countries where the minimum wage is triple or double that of Malta) is the daylight robbery of the Maltese people by the politicians and businesses responsible for the energy sector in Malta since 2013.
The Energy Minister and the chief negotiator, as well as the selection committee head – who, coincidentally, opened the secret Panama accounts for the minister and the Prime Minister’s chief of staff – should have known it was a crime to sell the power station to China and to mothball a power station that was ready to be transformed to gas, having worked perfectly for only 20 years of an industrial lifetime of up to 75 years. It was just throwing away a valuable asset for no reason.
For no reason?
My internal auditor experience and my knowledge of the energy business in Europe tells me there was a very clear reason. This reason, I believe, was criminally motivated, and it was to carry out a plan that included secret companies and trusts in Panama, Dubai and New Zealand, through which to obtain kickbacks. It included a planned new construction with investment from a consortium of Maltese and foreign businessmen, including Siemens and Azerbaijani gas supplier Socar, for a long-term agreement that would take out of Maltese coffers as much cash as possible over an 18-year period.
The fact that no proper tender was issued for the new power station, nor for the gas supply or the rental of the gas supply vessel, is one red flag. The fact that the supply of energy produced by the newly built power station was guaranteed to be purchased by Malta at a price double or even triple that of the going rate of electricity on the European grid at the time, was a second red flag.
The conditions of the contract should also have raised flags within Siemens, who were once found guilty of having a slush fund for bribery of foreign public officials and whose management had to resign. Why did Siemens join despite these red flags? Where were Siemens’ internal controllers, lawyers and management? Had GE been approached to build this replacement power station on the conditions that have been made public (possibly other, even better conditions are still secret within the redacted parts of the contract) GE lawyers would have stopped the deal because US law and European Conventions prohibit such a contract.
Of course, it was a fool-proof agreement: an over-priced power station, bank guarantees by the government of Malta itself, reducing all capital risks for the supplier, and guaranteed prices paid for all energy produced over 18 years at prices double or more than the market spot price. Such an agreement can only be criminally tainted. It is not a normal standard.
Why did Malta enter into such an agreement, so loaded in favour of the seller? Why did Malta buy gas from Azerbaijan at inflated prices, paying above the spot market prices?
Well, the 17 Black information that came through recently appears to have given us the answer.
The plan was to suck out of Maltese coffers as much money as possible through commercial contracts, charging the local population 30 per cent or even 100 per cent more than the going spot price for energy over several years and using Malta’s sovereign guarantee to reduce all risks for the consortium.
(To be concluded)
John Vassallo is a former senior counsel and director for EU Affairs at General Electric, a former vice president, EU Affairs, associate general counsel, Microsoft, and a former Ambassador of Malta to the EU.
This is a Times of Malta print opinion piece
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