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Charles Buhagiar | Sunday, 30 November 2008

The privatisation of Enemalta’s gas division

Enemalta (by means of a parliamentary resolution) has transferred, on lease for 33 years to Gasco Energy Ltd, a large plot of land at Benghajsa measuring in total 77,376 square metres for the specific purpose of erecting a new gas storage and bottling plant for the sum of €57,234 (Lm24,955) each year. No premium has been paid by Gasco to Enemalta for this land.
By means of another two contracts, a servitude is to be created to enable the passage of fuel pipes from the berth of the ship in the Freeport over Freeport property, and over a stretch of land which is public property. For the creation of these servitudes the contracts specify a one-time payment of €950 to Enemalta for the servitude over public land, and €20,000 to be paid by Enemalta to the Freeport for the creation of the servitude over Freeport property.
The relocation of Enemalta’s gas facility to Benghajsa goes back many years. During Labour’s administration (1996-1998) MEPA was requested to locate the most suitable site for such a facility. Such a site requires to be located in close proximity to a port. The only possible site identified by MEPA was that at Benghajsa but at the time MEPA had some reservations since it was located in the flight path of aeroplanes landing at the international airport. It was argued that this site posed a great risk in case of a forced landing of a plane.
In spite of this the site at Benghajsa was transferred on lease to Enemalta for 65 years for the specific relocation of the gas plant from Qajjenza on the 23rd April, 2004. In this contract a premium of €256,000,000 (Lm11 million) was paid by Enemalta for the land at Benghajsa.
In 2006 government decided to privatise Enemalta’s gas division. A call for interested parties was issued and two bidders submitted their offer. Gasco was chosen as the preferred bidder.
There are also two contracts between Enemalta and Gasco – a contract for three years during which time Gasco would make use of the Qajjenza plant and during which period Gasco would construct a new plant at Benghajsa; and a contract for 30 years for the site at Benghajsa. After the 33-year lease expires this new plant would revert back to Enemalta. The value of this “new plant” after 33 years is debatable since the technology would have changed so as to render this “new plant” obsolete.
The three-year contract for the Qajjenza site specifies that to make use of this plant Gasco would be paid €90,000 per month or a total of €3,240,000 over three years.
The other contract specifies that for the transfer of its gas storage and bottling business, as well as for its gas distribution organisation, Enemalta would receive from Gasco a one-time payment of €743,976. Hence, for the goodwill of the gas business built over many years Enemalta is to receive Lm319,440. Deducted the sum of €136,010 – the price paid by Enemalta for a new cylinder-filling carousel which is to become the property of Gasco – the actual fact the sum paid for the goodwill is €607,966 (Lm261,042).
This sum is less than what one would pay for a seafront apartment.
If one works out the amount of the lease to be paid over 33 years and add the sum of goodwill, the total sum would be approximately equal to what Gasco is to be paid for operating the Qajjenza plant for three years.
This means that after three years Gasco would have got the total lease and the goodwill for free. Definitely not a bad business deal – for Gasco of course.
In this contract with Enemalta, it is also specified that during the three-year period operating at Qajjenza, government might continue subsidising gas but these subsidies are to be removed after three years. The Labour opposition insisted on knowing how government is proposing to ensure a fair price for the gas to consumers.
In our opinion this is a very important issue, since although government is claiming that the gas business is to be liberalised, in actual fact it would be extremely difficult to set up a similar gas plant on another site. What is now a public monopoly would become a private monopoly.
Government’s reply to our concern is that the Malta Resources Authority would be the regulator. To the best of our knowledge MRA does not have the resources for such work.
We also asked whether the proposed pricing policies of the two bidders were taken into consideration during the adjudication of this tender. Apparently they were not.
In these circumstances the Labour opposition could not vote in favour of the resolution. In our opinion the price negotiated by Enemalta with Gasco is ridiculous and the tender was not awarded to Gasco in a transparent manner. Government did not explain whether it intends to continue subsidising gas and how it means to ensure a fair price for this commodity.
We have once again another example of government selling Malta’s assets for a pittance instead of ensuring a fair return which would go some way in reducing our deficit. And once again government will be forcing us citizens to pay for its misguided policies by increasing the cost of one other commodity.

Charles Buhagiar A&CE, is a Labour MP

 


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