What we have not been told by our government: Electrogas is guaranteed return of capex whether or not the plant is ever used or gas supplied
Companies listed on stock exchanges (even an alternative markets listing for those with no track record, which is what Gasol is listed on in London – the AIM) are obliged by law and stock exchange regulations to issue statements about significant company activity.
Gasol holds 30% of the consortium (called Electro Gas) which will build, own and operate Malta’s new gas-fired power station.
In its statement, released yesterday with news and information about its “Malta win”, the company says:
In simple terms, Electrogas commits to provision of the FSU and build of the power plant, and is guaranteed return of capex whether or not the plant is ever used or gas supplied – an unlikely event.
Capex is shorthand for ‘capital expenditure’. What this means is that whether or not the power plant is used, whether or not the gas is supplied, the government of Malta will have to pay Electrogas the full amount of what it cost to build the power station.
Here, the definition of capex/capital expenditure in the contract documentation is crucial. The government will not release these to the public, even though it is the public who will be paying that money, but the Opposition should make a point of demanding it in parliament, even if the only answer they get is “mhux fl-interess tal-poplu” or that the details are “commercially sensitive”.
I’d say it’s a safe bet that capex will be defined to include labour costs, cost overruns and any other possible uplift that the consortium may need to think about covering and even making a cut on.
As the Opposition pointed out repeatedly to deaf ears in the election campaign, there is no such thing as a free lunch and businesses are not charities or pro bono volunteers.
But Maltese society, in its keenness on freebies, cheapies and gifts, and with its long history of there being no link between projects and payment because of the colonial situation and the idea that it was all coming from somewhere else as a sort of munificence which was our right, has always ignored the time-honoured caution to beware Greeks bearing gifts.
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Gasol’s media statement PDF, to which you uploaded a link last night, has been pulled.
http://www.gasolplc.com/media/18640/malta_141013.pdf
It has been replaced with the official, formal press statement released under stock exchange rules:
http://www.gasolplc.com/media/18673/electrogas_malta_preferred_bidder.pdf
But last night’s link which you copied in your comment is still working.
However, I have a downloaded copy.
Can you kindly send me the PDF to [email protected]
Many thanks.
Very true.
Timeo Danaos et dona ferentes: Virgil
“Timeo Danaos sed dona ferentes”.
Translation:
“I fear the Danaens even if they bring presents”
‘sed’ (Lat) = ‘but’ (Eng).
The above translation has no buts, so Vic was right.
So you’ve uncovered another Trojan horse. You deserve a medal for the service you are providing.
I thought the new power station was to be paid for solely by the private company.
Wasn’t that in the tender document?
Under Labour’s proposal, the new plant will be financed and run by the private sector after a public call for expression of interest, while the BWSC extension will remain the property of Enemalta.
A Labour government would enter into a 10-year fixed-term electricity contract with the company chosen to build the new plant, during which Enemalta will buy the electricity produced.
http://www.timesofmalta.com/mobile/view/20130109/local/Labour-announces-its-plan-to-cut-utility-bills.452480
Shame on you Alexander Ball.
Tsk, you’re outdated and definitely not IN.
Yes, but the private company is guaranteed its money back. What it boils down to is that the private company is putting up the capital, which Malta, that is, you and me, must then pay back to the company in full, and then some more.
Enemalta has reduced its debt, by selling Euro 2 million of its assets to the Chinese, thus leaving the bottom line still unchanged, then committed itself to an additional Euro 6 million debt to the private company that is building the new power station.
So basically this means that the Labour government/Enemalta is committing to the buying of a power station and the floating storage tanks from Electrogas. Isn’t this what the PN and all of us have been saying?
Related question: what is the period over which the capex is to be paid according to the government’s guarantee? Would that be repaid over the first 5 years, or does it extend over the entire period of the power purchase agreement?
If the internal rate of return of the investment is “in excess of 11%” as stated in the Gasol plc public announcement of yesterday, would this mean that, should the government/Enemalta pay only for the capex, it is effectively borrowing at 11%? Is that the rate at which Enemalta normally borrows for its projects?
In his budget speech of 2011, Joseph Muscat had insisted that Enemalta’s cost of capital should be computed at 5.5% or even lower. So here he is now tying Enemalta to capex (and opex) financed at twice that rate.
Has a financial reporting due diligence been carried out on this part of the transaction? According to information I have, this is likely to be seen as effectively a financial lease purchase of plant, and is likely to entail that Enemalta will have to show the full value of the power station on its books, as well as the borrowing. So Enemalta’s debt will not improve.
They’re even dumber Ciccio, it seems the intention is to ‘lease’ the tanker for permanent berthing instead of concentrating on the pipeline. Not a word to regasifier scale either.
Blame GonziPN ‘ghax heqq u, kienu jdumu biex jaghmlu xi haga’.
This is Kordin grain terminal version 2.0, in full 3D and Dolby Surround.
The financing costs for the project, according to the Labour election manifesto, were put at 8.4%
The selling price of power to Enemalta will be 9c per unit. But this excludes the return on investment (according to the Labour election manifesto), so will the selling price actually be higher to cover the capital costs?
At the moment, the Enemalta generation costs are 11c per unit thanks to the BWSC plant and they have come down from 18c per unit which was the cost during the election campaign (did anyone in the Labour party do any forecasts with respect to the cost-benefit of the BWSC plant?).
So there maybe a situation arising whereby Enemalta can generate electricity cheaper than that being purchased from ElectroGas which will be price-fixed for the first five years. During this time, I would imagine Electrogas are hoping to recover their costs along with a 11% return.
Without seeing any financial forecasts (there were none made available apart from the Labour party manifesto), I do not know how accurate my assessment is.
Gary, where do you quote the 8.4% from? Can’t find it in my copy of the ‘roadmap.’
Again, where do you quote the price of 9c?
I remember Labour had mentioned the cost of 9c6 per unit (1KwH). This was said to be the cost of generation, and therefore excluding profit to the operator and presumably financing costs, as well as transmission costs.
For ciccio: The figure of 9c was me being approximate, you are right.
The cost of capital at 8,4% is mentioned a couple of times in the initial presentation by the Labour Party with respect to their energy programme. Found here (and you will need a Prezi account):
http://prezi.com/hh0r5pwapr7t/pls-energy-vision/
However, it is a figure quoted by the consultants (DNV KEMA) who contributed to the presentation by calculating the Levelised Cost Of Electricity (LCOE) which is a calculation of the cost of generating electricity at the point of connection to a load or electricity grid. It includes the initial capital, discount rate, as well as the costs of continuous operation, fuel, and maintenance (I took this from Wikipedia).
All the capital expenditure options are outlined too, though I found it a bit confusing. Maybe you can make a bit more sense out of it.
You last point is interesting as the LCOE price of 9.6c per kWh does not include the return on investment for the operator. So what will the unit cost be for Enemalta during the first five years (which is fixed).
If I m not mistaken, ciccio, the goverment is bound to buy the capacity of the power station and not the usage. Simple mathematics – Capacity in megawatts/hour X 24hrs X price per unit. They wont swich the thng off they just keep it running.
Their competitor’s problem in Europe is that they are only charged for the usage, hence a lower rate during the night.
What I am inferring here is that while Muscat expected Enemalta to lower its tariffs by reducing its return on investment from 8.5% to 5.5% (or even less – Labour had also mentioned a minimum of 4.7%), he is now accepting an offer which has “in excess of 11%” of return on capital to a private monopoly whose main customer is an entity owned by two governments (one of Malta, and the other of China).
Muscat’s suggestion would have crippled Enemalta, its ability to finance capital expenditure, and would have got it into trouble with its banks. It would have resulted in the banks calling in their loans and the government having to honour its guarantees.
Even Standard & Poor’s had criticised Labour’s suggestions.
Now Muscat is paying “in excess of 11%” of profits to third parties, rather than asking for a lower price of electricity and more savings to our households.
See my other detailed comment below.
http://www.theregister.co.uk/2013/10/15/lights_out_across_europe_capgemini_warns/
‘….whether or not the plant is ever used or gas supplied..’
Quite a distinction there. Someone’s still not committed to supply at the price thrown to the press.
Please note that in http://www.gasolplc.com/media/18640/malta_141013.pdf there is stated that “The newly elected (March 2013) Maltese government has promised to reduce household energy costs by 20%”
Wasn’t it 25%?
Yes. But Joseph-style, they said ‘by up to 25%’, leading people to think that that’s what they’d get.
Bloody stupid of them, anyway. Big savings are only possible on high expenditure. They could have saved more by cutting down on wastage and not lumping us with a Labour government.
Hadd ma jaghmel xejn ta’ xejn.
Dik wahda.
Apparti minn hekk, ejjew nassumu li, f’din l-equation, cioe b’capex return shih ghal din il-kumpanija, ir-rata se tkun aktar baxxa minn dik tal-BWSC power station.
Jibqa l-fatt pero li l-capex tal-interconnector u l-power station tal-BWSC – iridu jithallsu wkoll. Dawn qed jigu factored fil-kontijiet?
Seen that as well. This makes the venture almost risk free for the consortium, as at worst, it will recover all the expenditure on the plant.
The more I read the more I see that the contract is a win/win situation for the consortium and Malta is getting short changed.
With these terms, we might as well have Enemalta build it.
Malta, what’s that?
With or without those terms, we might as well not have had it built at all.
Basically, Electrogas has no incentive to be cost-efficient in building the power station, since they will be repaid in full no matter how much it costs.
Part of me wants to say that the people got exactly what they deserve. Something has got to give to make up for this burden, and predictably it will be health services and education.
It’s Muscat’s cunning plan to attract FDI. Variations most welcome.
“The 200MW power plant will be constructed by Siemens under a fixed price lump sum EPC Contract. Siemens will also operate and maintain the power plant under a Long Term Services Agreement.”
This was stated in the document published by Gasol plc on their website on 14 October 2013, and which was later withdrawn. The document is compiled by Equity Development, a UK independent investment research company.
EPC means “engineering, procurement and construction.”
What Equity Development is saying is that the cost of the new 200MW plant will be fixed at the outset.
In fact, it seems that the cost of the 200MW plant was already set on 8 January 2013, when Konrad Mizzi announced Labour’s energy plan and had determined that the cost of the 200MW plant will be Euro 166 million.
http://www.timesofmalta.com/articles/view/20130108/news/pl-tariffs.452366
However, this is only part of the costs that the government will commit to pay over 18 years. There is the floating storage unit, the conversion of the BWSC plant to gas, the regasifier, the installations, preparation and so on. And then there is the gas and costs of operations, of course.
http://www.socar.ro/en/SOCAR-AZERBAIJAN
Is there a way to find out who has bought shares in Gasol, particularly in the last 2 years or so?
Are there laws against insider trading in the UK? In the US a few personalities and executives went to prison for this crime.
Good one. Come on, Daphne, find out for us and publish all please.
Are you allergic to research? All the information you need is in the public domain.
If a few more people asked a few more questions a bit more often, Muscat wouldn’t be getting away with political murder because he wouldn’t be prime minister at all.
Konrad never said that. He vouched it would be an investor willing to put up capital themself, whereupon Enemalta would buy the electricity generated.
http://www.youtube.com/watch?v=Fetm4zNwJh0
Tonio makes it clear at 13:00.
And this was before capacity tripled, the tanks replaced by a supertanker requiring a 300 meter jetty which still requires safe operational distances anyway and onshore loading/unloading complicated by the proximity of two behemoths moored alongside in waters which tend to rough through most of Winter.
By the way, what happened to the investor’s advanced payment to government to lower prices this March?
I’m no financial engineer, all I know is that what they’re proposing is redundant as soon as the interconnector’s in place, let alone the pipeline.
Someone stop them, before they carry this place to default. They’re either psychotic, or, and did we know it, pushed by someone beyond this place.
And they have the nerve to grumble about sovereignity. They will remain an agglomerate of ricer driving nix mangiari who have no sense of dignity. All they respect is money, especially when it’s someone else’s. Fits a certain people’s republic to a tee.
Tonio’s answer at 38:40 nails it. What Tonio didn’t know regarding Insurance, is that a certain Shiv Nair can create an ad hoc insurance company and unload it onto the central bank in a couple of year’s time. Easy.
But that’s boooring PN for you, orthodox, decent and no sense of adventure. U ejja, marelli papa’.
The lies are so thick that only going back to the PN’s proposal are they placed in perspective.
There’s an interconnector and a pipeline, how does all this goobledygook compare with those?
In other news, it seems that a Japanese company has beaten the MLP to it in their search for a party mascot. Shame, a very apt choice for Joey & Co. indeed….
http://www.telegraph.co.uk/news/worldnews/asia/japan/10379946/Fukushima-Industries-unveils-its-new-mascot-Fukuppy.html
I do not think Dr. Mizzi would be so daft as not to include heavy penalties for non deliverables. Then on the other hand, maybe he is.
Let’s say they build the plant in 2 years but do not deliver on the gas supply; does this mean that we have to pay for the plant?
The €370 million cost for the new power station – reported today is exactly the same cost for the power station announced by PL during the electoral campaign in January.
Please refer to Konrad’s Prezi Presentation dated 9th January 2013. The project was estimated at 376million.
Today Gasol revealed that the project will cost €370 million.
http://www.timesofmalta.com/articles/view/20131015/local/power-station-project-to-cost-370-million.490466
Seems the deal was already defined since many months.
http://www.maltarightnow.com/?module=news&at=Il%2DMEPA+to%26%23295%3Bro%26%23289%3B+permess+g%26%23295%3Bal+%26%23380%3Bvilupp+qrib+it%2DTempji+Ta%27+%26%23294%3Ba%26%23289%3Brat&t=a&aid=99851433&cid=19
Go ahead and buy shares in Gasol. Has anyone noticed Gasol employs 10 people?
So essentially, Electro Gas is building a power station which it will use for 18 years before selling it to the Maltese government for exactly what it cost them to build.
Great deal – for Electrogas.
Well, I always knew that that’s the way it is, but now we have tangible proof.
Most people who read the statement won’t understand what ‘capex’ means; at least I didn’t.
Is the Govt of Malta, Enemalta or SPV identified as the Guarantor of the said capex? Is the SPV referred to by Gasol, which will be acquired for €30m, already set up?
Will Claire Bondin Bonello now parade a Vote Joseph Get Lorry placard?
The Gasol share price needs to be investigated for insider trading.
An RNS (Regulatory News Service) issued by Gasol Plc yesterday.
http://www.investegate.co.uk/gasol-plc–gas-/rns/electrogas-malta-preferred-bidder-for-lng-to-power/201310140700073801Q/
So it seems we will be BUYING a power station after all, except that we are giving it away to someone for them to make money off it for 18 years first.
All that was said about it being only a supply agreement for gas and electricity was never true, but then why should we be surprised by that.
Meanwhile, the European Commission approved, in principle, the funding of the Malta/Sicily gas pipeline, just as the Nationalist Party repeatedly said it would before the election.
No such EU funding has been forthcoming for the Muscat/Shiv Nair/China/Azerbaijan/god-knows-what power project which we have been lumped with
Put that in your pipe and smoke it, Joseph.
http://www.timesofmalta.com/articles/view/20131014/local/sicily-malta-gas-pipeline-included-in-eu-projects-funding-list.490328
No such EU funding has been forthcoming for the Muscat/Shiv Nair/China/Azerbaijan/god-knows-what power project which we have been lumped with because it doesn’t qualify for EU funding.
That’s something else the switchers missed.
Gasol is a subsidiary of a company called Afren which belongs to one Rilwan Lukman, former secretary-general of OPEC and ex-Minister for Petroleum Resources of Nigeria. Lukman owns serveral oil wells and has interests in mining and LNG extraction. He is considered one of the most powerful men in Nigeria.
The Nigerian oil sector is notoriously riddled with corruption and although nothing specific seems to have been pinned on Lukman (as far as I could find out), he has been mentioned in some blogs and African news portals in connection with shady operations and conflicts of interest.
Lukman, Ajumogobia, Barkindo Stand Arrest over Subsidy Fraud
Saturday, 18 February 2012 09:12
“Strong indications emerged Saturday that Dr. Rilwanu Lukman, former minister of Petroleum Resources, Odein Ajumogobia, a former minister of state, petroleum resources and Alhaji Mohammed Barkindo, one time Group Managing Director (GMD), of the Nigeria National Petroleum Corporation (NNPC) have been pencilled down for questioning and possible arrests by the Economic and Financial Crimes Commission (EFCC) following the starling revelation during the House of Representatives Committee on Petroleum Subsidy probe.”
http://www.frontiersnews.com/index.php/news/326-lukman-ajumogobia-barkindo-stand-arrest-over-subsidy-fraud
Rilwanu Lukman’s Tangled Web
Posted: January 24, 2009 – 00:00
“Although he is the minister of petroleum resources, Rilwanu Lukman is a major shareholder and director of a raft of offshore companies active in the oil and gas sector in Nigeria and the surrounding Gulf of Guinea, our investigations showed.
Mr. Lukman’s tangled web of business interests are indisputably a conflict of interest for the 70-year-old minister, perhaps Nigeria’s most famous oilman. He became minister on Dec. 18 2008 and, before that, served as President Umaru Yar’Adua’s special adviser for the same industry. He also had previously been minister or adviser under various past administrations, and served also as Opec secretary general, based in Vienna.”
http://saharareporters.com/news-page/rilwanu-lukmans-tangled-web
Lukman’s Latest Scam
By Sahara Reporters 14/8/09 7:18:42 AM
“Nigeria’s increasingly powerful oil Minister, Rilwanu Lukman, seems poised ensure the flow of some oil money into his private coffers, courtesy of some clever moves now being made in the sector. But Saharareporters has unearthed the scam.”
http://www.ocnus.net/artman2/publish/Africa_8/Lukman_s_Latest_Scam.shtml
He was appointed chairman of Gasol in July.
http://www.proactiveinvestors.com › Archives › Newswires › LON:GAS
Dalli managed Aftrican charity?
How many oxymorons in that?
http://www.timesofmalta.com/articles/view/20131015/local/muscat-at-holocaust-memorial.490502#.Ul243WTk4Xg
Hu go fik, Lowell.
Muscat is not averse to parading sentiments he doesn’t actually feel.
Or did you miss his speech at the UN last month?
I haven’t missed anything, and I suspect I’ve been reading the signs better than any of our pundits. Joseph Muscat and the Labour “movement” was carried to victory by right-wing supporters, including Norman Lowell’s Imperium Europa and ostensibly neutral hangers-on such as Kevin Ellul Bonici.
Many of them are anti-Jewish as well as anti-African and anti-Arab. They poured a torrent of insult at Lawrence Gonzi when he tried rapprochement with Israel and the Jewish community in Malta and was photographed wearing a kippa. Now it’s Joseph Muscat who’s wearing it, and at the Yad Vashem too.
So there. It won’t exactly delight Labour voter and Muscat supporter Stephen Farrugia. And many others. And you know what? Serves them right. When you support a man who built his fortunes on contradictions (and lies), you deserve to have this photo shoved in your face.
http://www.gasolplc.com/media/18640/malta_141013.pdf
As far as I am aware, this document contains details not yet published in Malta by the transparent government of Joseph Muscat, especially about the INTERNAL RATE OF RETURN – which basically refers to the effective return on the capital cost of the project.
A key line in this document states:
“It is too early to be confident of the numbers, but indications are that the project should have a short payback period with an IRR in excess of 11%.”
A short payback and a return in excess of 11%. WOW.
So Prime Minister Joseph Muscat will be giving the private monopolistic operator an 11% return on investment.
Meanwhile, in November 2011, Muscat was arguing against Enemalta’s rate of return on investment of 8.5%. Enemalta at the time was fully owned by the government. Muscat had argued that this rate of return was unnecessarily high and that if it is lowered – and he promised he would lower it – it could result in savings of Euro 12 million to consumers.
http://www.timesofmalta.com/articles/view/20111127/local/Muscat-s-energy-proposal-may-not-survive-rating-test.395745
“Labour’s claim
If Enemalta’s return on capital is benchmarked with the UK’s 4.7 per cent, the Labour Party estimates that savings could reach €15.3 million.
Adopting a slightly higher rate of 5.5 per cent, which is more in line with the European Commission’s recommendations, the Labour Party says that it would still cut down return on capital by €12.1 million.
However, when asked what such a saving would mean for individual consumers, the Labour Party insisted that reducing return on capital was only one of a raft of proposals that would be presented to the electorate.
“The plan will be a holistic one that will offer realistic and sustainable savings,” a spokesman said, without quantifying the savings.””
If Muscat wanted a state-owned corporation to earn a low rate of return of 5.5% in November 2011, why is he offering to grant a monopoly to a private operator for a rate which is more than twice (“in excess of 11%”) that which he proposed less than 2 years ago?
Why isn’t Dr. Muscat passing on FURTHER SAVINGS OF MILLIONS to consumers today by requesting a rate of return of 5.5% from the private operators?
If consumers could save Euro 12 million by reducing the rate of return by 3%, from 8.5% to 5.5%, in 2011, surely consumers can save around Euro 24 million by reducing the rate from 11% to 5.5%.
Why is Joseph Muscat planning to take away an extra Euro 24 million in bills from consumers and give them to a non-state monopoly?
PS. Looking at the site map published in this document, can someone explain what will stop the LNG floating storage unit from drifting towards the residential area of Marsaxlokk in strong winds?