James Debono explores the links between BWSC and the protagonists of the Auditor General’s report: namely: blacklisted foreign consultancy Lahmayer International; Enemalta Chairman Alex Tranter who worked with a BWSC subcontractor; and ‘evasive’ local agent Joseph Mizzi, who first worked for Lahmayer International and then for BWSC
A ‘blacklisted’ consultant
The Auditor General, Anthony C. Mifsud, deems the choice of Lahmeyer International (LI) as “independent consultant” in the adjudicating process to be “questionable” for three different reasons: namely, its blacklisting by the World Bank; its previous business relationship with BWSC; and its previous relationship with BWSC representative in Malta, Joseph Mizzi.
According to the auditor’s report LI’s advice was “instrumental” in Enemalta‘s decision to accept bidders that had quoted prototype combinations rather than complying with the original tender, which stipulated the requirement for “tried and tested solutions” backed by references to international sites operating the same equipment as those being proposed.
It was only thanks to this decision that BWSC remained in the running for the Delimara contract.
The NAO report concludes that Enemalta Corporation’s decision to go for a prototype combination has put Enemalta’s “in a position of very high risk”.
The Auditor states clearly that LI should not have been selected as a consultant after being blacklisted by the World Bank for paying bribes through an intermediary in the southern African state of Lesotho.
During the inquiry, Enemalta senior officials declared under oath that they were not aware that Lahmeyer had been blacklisted by the World Bank for the period 2006-2013. The Audit Office was not convinced of the explanations given by Enemalta adding that Enemalta “should have ensured that its selected business partners held ethical credentials better than those of Lehmayer International”.
The report reveals that despite the company’s blacklisting as late as 28 September 2009, the Malta Resources Authority extended a contract awarded to Lahmeyer International by another direct order in connection to a study on the Energy Interconnection between Malta and Europe.
The Auditor also questioned the choice of Lehmayer International on the grounds that it had been previously engaged in a joint project with BWSC: one of the bidders on which LI is supposed to have drawn up an ‘independent’ analysis.
Another “evident weakness” in resorting to Lahmeyer’s advice was the fact that Joe Mizzi, the person representing BWSC, had contacts with and in the past even represented Lahmeyer International locally.
“Enemalta should have been more careful and could have better chosen its consultants to advise it, ensuring they had no connection whatsoever with the parties,” Mifsud noted.
Questioned under oath on his relationship with LI, Mizzi denied ever discussing the power station tender with Lahmeyer. He stated that he had represented LI only on one other occasion and that he had no ties with the company after 2007.
Enemalta’s senior management also declared under oath that “Enemalta was not aware of the fact as to whether Mr Mizzi was involved with Lahmeyer at the time.”
‘Evasive’ Mizzi The report refers to the email submitted by Mizzi to BWSC on 10 May 2005 in which the BWSC’s local agent stated “we need to tap another source higher in the political hierarchy …”
Mizzi was asked several times, under oath, to clarify the message conveyed in this email. Mizzi declared that the email was sent on the instructions of his then employer Joseph Rizzo of Associated Supplies Ltd, and that he did not know to whom the email referred to. During another meeting in which Mizzi and Rizzo were confronted on the matter, while Mizzi insisted that he was following Rizzo’s instructions, Rizzo said that Mr Mizzi is “a bluffer”. Neither provided any evidence as to the intended “higher source”.
According to the Auditor without other corroborative evidence, on its own the statement “tapping higher sources in the political hierarchy” is not considered sufficient evidence of ‘trading in influence’ even if the “email does raise certain doubts as to the intent of its content”.
The Auditor also referred to emails handed over by the Opposition, which indicated that Joseph Mizzi had “good contacts within Enemalta.”
Specifically Mizzi had known in advance of technical specifications required, of schedules of meetings that Enemalta was holding with other bidders and of an invitation extended to Enemalta’s Head of Electricity to visit a power plant in Guernsey.
When questioned Mizzi insisted that he had never approached any Enemalta officials to obtain information other than that which was publicly divulged by the Corporation. Confronted with a schedule of meetings that he had had at Enemalta, Mizzi stated that these were regular meetings that bidders and their agents ordinarily attend when bids for tenders are made.
One of the most damning revelations of the report is that Enemalta’s records on persons visiting the Corporation’s premises “are incomplete and unreliable”.
According to the NAO, “this raises concern since, considering the security aspect involved, complete and reliable records need to be duly kept of all visitors to EMC without exception or fail”.
In view of these allegations, the NAO also called on the Enemalta Chairman “to conduct those investigations deemed necessary to confirm or otherwise whether any such leakages had actually taken place”.
The chairman subsequently informed NAO that according to an internal investigation, no evidence of such leakages could be traced.
In view of its investigations on Joe Mizzi’s role in the whole affair the National Audit Office concluded that there “was that no hard evidence to substantiate” the allegations of corruption.
But according to the NAO “this does not mean that the content of some of the emails sent by Joseph Mizzi is not cause for concern, especially in so far as the way how certain restricted information seems to have been obtained from Enemalta Corporation”.
According to the auditor “these allegations raise serious doubts and concerns, more so in those cases where insufficient explanations were given during the course of the inquiry which could dispel such concerns”.
The report also notes that Joseph Mizzi who was summoned by the NAO on three separate occasions, tended to be “somewhat evasive, sometimes bordering on non-collaboration, very often citing lack of memory when confronted with certain direct questions”.
Tranter’s conflict of interest The report notes that in June 2008, Enemalta chairman Alex Tranter had declared his conflict of interest in the Delimara Power Station extension because in his private capacity he had business links with the local company entrusted with civil works in BWSC’s bid.
For this reason, he stated under oath, that he refrained from participating in the tendering process.
But the Auditor notes that, prior to his declared conflict of interest, Tranter had already appointed the members on the evaluation and adjudicating committees responsible for the evaluation of tenders.
“Notwithstanding this, the Chairman failed to inform his Minister to approve or otherwise the appointment of these committees following his declared conflict of interest”.
According to the Auditor it would have been more prudent and appropriate had the Enemalta Chairman resigned from his post at the time when he had declared a conflict of interest.
“This would surely have eliminated the extensive controversies which arose at a later stage, especially in view of the fact that the local company with whom the Chairman had declared having professional connections with was actually sub-contracted the civil works of this tender”.
The change in specifications The report questions the decision made by Enemalta and the Department of Contracts to continue with the original tender despite legislative changes which amended the specifications on emission levels while the bid was still open.
“With the benefit of hindsight, it is felt that much of the controversy surrounding this tender could have been avoided had the tendering process been stopped and reissued to reflect such change in specifications.”
The original regulations on emissions date back to legal notice issued in 2002, which established permitted levels of air pollution for large combustion plants at levels well below that emitted from engines of the diesel engine combined cycle type (DECC)-which will be used in the new Delimara plant.
“These were the prevailing legal requirements regulating emissions in Malta at the time the tender conditions were drafted and issued,” the report notes.
The NAO also took note that this view was confirmed by the 2006-15 Electricity Generation Plan published by EMC “which condemns the use of DECCs, extols the qualities of natural gas (NG) and expressly and explicitly recommends the employment of gas turbines for power extensions for the near future”.
But on 4 January 2008, the Government Gazette published Legal Notice 2 of 2008,which effectively changed the original legal notice to exempt “plants powered by diesel, petrol and gas engines” from the regulations.”
According to the NAO this change was allowed in terms of EU Directives. But the report confirms that in the absence of these changes, a power plant operated by Heavy Fuel Oil would have been overruled and the only a DECC plants operating on diesel would have been accepted.
Technical experts consulted by NAO concluded that only DECCs running on gasoil would have met the LN 329/2002-imposed limits as far as SO2 and dust were concerned, and could have just made it for NOx.
“While the above may disprove the allegation that DECCs would not have qualified under the LN 329/2002 regime, it is deemed extremely pertinent to note that qualification is based on the assumption that DECCs are run on diesel”.
The Auditor concludes that the cost of compliance would have rendered the DECC bids operating on diesel “more expensive” than plants operating on natural gas and this would thus have “obtained a lower ranking than they did in the financial evaluation”.
NAO sought advice afforded by its legal expert, who concluded that the best option would have been the abortion of the original tender and the issue of a new one.
“Such a decision would probably have avoided most of the subsequently arising controversy, at the same time ensuring a greater degree of transparency and equity”.
The report notes that the contract stipulates the payment of liquidated damages for non achievement of guaranteed performance in cases of a shortfall in net electrical output; higher than guaranteed heat rate; and higher than guaranteed CO2 emissions.
Shortcomings in the contract The report notes that while delays caused by faults on the part of Enemalta entitle the Contractor to an extension of time completion, and at times even to extra compensation, delays on the part of BWSC “do not seem to carry the corresponding penalty for late completion.”
The Auditor expressed doubts on financial incentives to BWSC on the basis of early completion of the plant, stating that even without financial reward, is already a ‘win’ situation for the Contractor – as finishing earlier than targeted will translate in monetary savings by way of the possibility to allocate resources assigned to the project completed prematurely to other projects, thus reducing actual project costs from those budgeted, resulting in increased profit.
NAO also expressed its failure to “comprehend why any financial loss sustained by the Contractor by way of force majeure should be made good by Enemalta”.
Shortcomings in planning The report also concludes that it “is risky to sign a contract for a development which requires an Environmental Impact Assessment (EIA) without first carrying out the EIA”, as the EIA may lead the Malta Environment Planning Authority (MEPA) to impose conditions that affect the contract.
MEPA had only approved the outline permit last January, following the EIA on a power station operated by Heavy Fuel Oil as stipulated in the contract granted to BWSC.
Another shortcoming in the approval of the project by MEPA is a case of misinformation involving Enemalta’s Chief Technical Officer.
According to the report NAO officials present for the MEPA Outline Development Permit hearing, Enemalta’s Chief Technical Officer referred to a contract regarding waste disposal signed by Enemalta Corporation in October 2009.
“During this hearing, he stated categorically that Enemalta had entered into a contract for the export of flyash from Marsa Power Station and bottom ash from the Delimara power station.
One of the concerns on the Delimara Power Station extension is that it is set to produce vast quantities of toxic ash, which will have to be exported.
But when NAO asked Enemalta for a copy of the contract mentioned by the Corporation’s chief technical officer during the MEPA hearing. it transpired that this contract covered only flyash from the Marsa Power Station.
When questioned the Enemalta officer denied that he had ever informed the MEPA Board that Enemalta had any arrangement for the disposal of waste from the Delimara Power Station. Subsequently the Enemalta chairman confirmed that the corporation had no contractual agreement for the Delimara waste.
The Auditor’s remit The functions and powers of the Auditor General are defined by Section 108 of the Constitution of Malta and the Auditor General and National Audit Office Act of 1997.
These empower the Auditor General to audit the accounts of all Departments and Offices of the Government of Malta, and of such public authorities or other bodies administering, holding, or using funds belonging directly or indirectly to the Government of Malta.
The Auditor’s mandate includes the Performance audit of Central Government Departments and Offices as well as the audit of the operations of companies or other entities in which the Government of Malta owns not less than 51% of the shares.
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