Issue link: https://maltatoday.uberflip.com/i/193056
14 BUSINESS & FINANCE maltatoday, WEDNESDAY, 16 OCTOBER 2013 A clean energy policy, avoiding excesses of the past When the government switched from using coal and started burning oil in the old power station in Marsa, the villagers could rejoice and look to a future wihout the heavy incidence of cancer or bouts of asthma R George Mangion eaders may be shocked by the picture of a power station with a chimney belching dark smoke into the clear blue sky. Yes, this was the situation in one of our power stations, which not so long ago was burning black coal. It used to be stored at the quayside in Marsa, and as can be expected in windy days, fine black powder used to blanket the entire harbour area. When the government decided to switch from using coal and start burning oil in the old power station at Marsa (targeted to be closed in 2009 but still much needed today), the villagers could rejoice and look to a future without the heavy incidence of lung cancer or bouts of asthma. Even so, changing to low sulphur oil came with a higher cost of electricity generation, and this was blamed by the government on the vagaries of international oil prices, over which it had no control (except Enemalta procurement team officially aims to buy oil at the cheapest and hedge the euro/dollar positions). There were many protests over the high cost of living caused by exaggerated increases in the tariffs, with industrialists claiming subsidies to be able to stabilise their prices – more so since such upward revisions coincided at a time when recession badly hit their export markets. There is no doubt that the inefficiencies of both the Marsa and Delimara generating plants (only reaching 23% and 30% maximum efficiency) added handsomely to the cost of operation. Of course, we now discover that credit rating of Enemalta was marked down due to its highly leveraged position with foreign banks. Many highly criticised the selection of building an extension using a prototype BWSE engineering model running on heavy fuel oil. HFO may be cheaper to buy, but when adding the cost of storage and disposal of its obnoxious waste makes it expensive fuel in the long run. One need not go into the merits of the political motive to invest in this risky equipment, as this was one of the topics much discussed in the debates prior to last general election. Suffice Gone are the days when the inhabitants of Marsa were subjected to fine dust from old Marsa plant or feared the accidental spillage from the carcinogenic residue from burning HFO at the Delimara plant it to say that it is expensive to convert the plant to run on diesel or other fuel oil with lower CO 2 emissions, yet the incumbent government has promised to switch the operation to run on gas while continuing to risk contamination in the air continue on HFO, ensuring no accident happens in the meantime during storage and disposal of obnoxious burnt ash. Electricity generation using a cleaner fuel was promised by the Labour government – which is taking a high risk to quickly rush through a tendering process to invite international companies to install a plant running on LPG, promising to reduce existing tariffs to households by 25% across the board by March. Industry will enjoy the reduction in 2015. Hot on the heels of the announcement of the lucky bidder that will provide clean electricity at a fixed price in the first five years, one welcomes a consortium led by a Maltese team of two companies (Tumas and Gasan) with other international partners, which is to build the new gas-fired power station. Amid much fanfare and razzmatazz the energy minister proudly announced the winning consortium as 'a world class' team and their bid was able to get bank finance for the project. Much to the chagrin of the Opposition party, he boasted that it was his government's hard work and determination that saw a first move by the private sector with local interests to place faith in such an innovative investment. Naturally, having a monopoly for 18 years of such an essential national service is an opportunity which does not repeat itself very often. Owning the only gasfired plant and related infrastructure for liquified natural gas storage places any consortium in a powerful and perhaps envious position, as can be said for other natural monopolies which were nationalised in the past (for example, Tug Malta, Airport, Freeport, SeaMalta, etc.) and are all doing well generating handsome profits and securing sustainable employment. The consortium will sign a 18-year agreement to supply Enemalta with electricity and liquefied natural gas to run a purpose built plant while the BWSC plant will be converted to gas in due course. All this against an undisclosed signature sum which is payable on contract and guaranteeing provision of clean electricity at a fixed price for five years, with subsequent revisions. It was also decided that rather than build permanent tank structures (which was heavily criticised by the PN), it will store liquefied gas on a ship permanently berthed at Delimara. The Tumas Group is well known in Malta as owners of the Hilton hotel complex and the sprawling luxury residential home and marina at Portomaso, while the Gasan Group are one of the established business magnates with various interests in automobile importation, hotels, insurance and other sectors. Gem Holdings is composed of the Tumas and Gasan groups and has partnered with German firm Siemens, the commodities trading arm of Azerbaijan's State energy firm Socar and UK company Gasol to form Electro Gas Malta consortium. The storage ship has been criticised that it will dwarf any other container ship which enters the Marsaxlokk harbour and is quoted to have a capacity of 126,000 cubic metres. Concurrently Enemalta has signed a deal with a China state company to invest €200 million and acquire a minority shareholding which will go a long way to buttress its much depleted capital which over the past decades has accumulated cash losses of €840 million (apparently owing creditors via an SPV for the Delimara phase one and two plant). As can be expected with the appointment of a Chinese deputy chairman, there will be a root and branch organisation of the work practices, and this may lead to improved opportunities for the overmanned Enemalta to better use its technical staff to be seconded to the new company under current conditions, but will remain on Enemalta's books. All this comes into a strategy to have a mix of electricity supply since the linking of Malta to Gela in Sicily via a submarine electricity cable will not render all our eggs in one consortium. But it does not rain, it pours when electricity supply is concerned since only this week European Union has included the proposed gas pipeline between Malta and Sicily in a list of energy projects which may qualify from a total of €5.85 billion in funding. It will be via a 150 km pipeline from Sicily to an offshore Floating Storage and Regasification Unit unit some 12 miles off Malta, and the Delimara power station. This interconnector will provide a golden opportunity for Malta to be able to trade in gas supply markets if and only if it can succeed to strike it rich with its future offshore exploration. It is ironic that after 60 years of failed attempts to drill for oil/gas both onshore and offshore it is encouraging to read that a recently recapitalised local company Medserv has won the contract for logistical services for the drilling of an exploration well. To start with this contract was awarded by Genel Energy Petroleum Services Ltd and is for one well initially, with an option to extend for a further one well. It was only last May when Mediterranean Oil & Gas reached agreement with Genel Energy to use the deep-water semi-submersible drilling rig 'Paul Romano' to drill the Hagar Qim well in Area 4 south of Malta this winter in water depths of approximately 450 metres and will target reservoirs at a depth of approximately 2,500 metres. Hydrocarbon production has been established in adjacent areas for several decades with the Area 4 block licensed to MOG having considerable exploration potential. These blocks are anticipated to be geologically similar to the producing areas of the Libya Sirte Basin and Tunisia. Various estimates have been quoted on the chances of hitting the right spot in this intra basin area which can be rich in rock oil particularly in the Lower Eocene/Paleocene. Some speak of 109 million barrels of oil equivalent. Obviously a rich strike will act as a harbinger of good news that will attract serious bidders to explore other areas particularly in the northern part close to Sicily in the rich Ragusa basin. Prime Minister Joseph Muscat said that the government was working to achieve an agreement for joint oil exploration with Italy in areas claimed by the two countries, in the same way as agreement was reached last month regarding joint exploration with Libya. Ideally the extensive infrastructure which the ElectroGas Malta consortium intends to build together with the liquefaction plant combined with the gas pipeline to Italy will pave the way for Malta to add another pillar to its thriving economy, which alongside GPD growth from remote gaming, tourism, financial, services, manufacturing and shipping will continue to improve the standard of living of its inhabitants and secure healthy living in a clean air environment. Gone are the days when the inhabitants of Marsa were subjected to fine dust from old Marsa plant or feared the accidental spillage from the carcinogenic residue from burning HFO at the Delimara plant. A brighter future beckons. George Mangion is a partner in PKF, an audit and business advisory firm (gmm@pkfmalta.com)