Turning Nelson’s eye on the Powerstation

The report by the NAO said that the bank guarantee provided by government to Electrogas was “…was irregular in terms of the Guidelines applicable at the time, for the Guidelines did not contemplate assistance provided directly to private enterprises by way of security”. NAO said that while this guarantee was inspired by the national interest, the period that elapsed until conclusion of the matter with the EC posed significant risk to Government, more so when one considers the magnitude of Government’s exposure. In financial terms this exposure corresponded to the €432,000,000 guarantee; however, a possible default on this guarantee would have triggered cross default in all outstanding Government guarantees, resulting in significant financial implications to Government. The NAO is of the opinion that the risk faced by Government in aiding ElectroGas Ltd obtain financing was significant and could have been mitigated or avoided through better planning and project management.

Were the damages paid for by Electrogas?

NAO also pointed out that although the total delay liquidated damages amounted to €22,415,000, these were effectively capped at a comprehensive €18,000,000. The NAO said that it was unable to ascertain whether the delay liquidated damages were actually paid by ElectroGas Ltd as queries submitted to Enemalta in this regard remained unaddressed.

Shortfall of €20,000,000 by Electrogas not explained

With respect to the commercial requirements, NAO said that the main shortcomings outlined in the ElectroGas Consortium bid report included the shortfall of €20,000,000 in the required total investment and limited evidence of firm commitment from suppliers to provide gas supplies during the term of the project. Cited in the bid report was that the €20,000,000 shortfall in the €370,000,000 investment, which was not properly sanctioned by the respective board of directors of the Consortium members, was the result of additional costs that were to be incurred following a last minute concession by Enemalta to allow operation of the power plant on open cycle mode for the first six months of operations. The NAO is of the opinion that explanations submitted by Enemalta failed to substantiate that cited in the bid report, that is, that the €20,000,000 shortfall was linked to the extended operation of the power plant in open cycle mode.

Defective submission raised no eyebrows

The NAO report said that despite the considerable number of instances of non-compliance with the minimum requirements noted by the Evaluation Committee, the submissions by the ElectroGas Consortium and the Endeavor Consortium were recommended to proceed to the ensuing stages of evaluation. The NAO was unable to verify the legal and technical advice obtained as no documentation was retained in this respect.

More substantial omissions were noted, with the ElectroGas Consortium failing to provide technical values or specifications and instead indicating that these were to be determined at the design stage. This shortcoming was noted in bid forms relating to the gas turbine and steam turbine generator, where the short circuit armature time constant was not specified. Similar shortcomings were noted in the bid form relating to the main connections and neutral earthing equipment, where details regarding impedance were not specified and in the bid form regarding low voltage switchgear, where details of fault ratings were not specified.

NAO noted that although matters brought to the attention of the Programme Review Board related to both bids, the NAO noted that the Committee only referred matters for legal consideration with respect to the submission by the ElectroGas Consortium.