PRESS RELEASE BY THE MINISTRY FOR TOURISM

Reference Number: PR180849, Press Release Issue Date: Apr 19, 2018
 

Reference is made to the article on The Shift entitled ‘REVEALED: Konrad Mizzi signature on hidden LNG agreement raises red flag’ (the “article”), which contains a number of incorrect or misleading statements. The article misses the commercial context of the agreement and creates suspicion where there is none.

 

A consistent and reliable supply of LNG to the power and gas facilities contributing to more than two-thirds of the energy requirements of Malta was deemed to be an indispensable instrument for ensuring an appropriate degree of security of electricity supply to the Maltese islands. It was in this context that it was considered essential for the Government of Malta to ensure that the supply of LNG by SOCAR Trading SA would not be interrupted for commercial reasons.

 

The Cabinet of Ministers had therefore agreed to enter into a direct agreement with SOCAR, the company supplying LNG to Electrogas Malta Limited (EGM) for this purpose (the LNG Direct Agreement). Minister Mizzi did not sign documents in his personal capacity, but on behalf of the Government of Malta, with the approval of the Cabinet of Ministers.

 

This LNG Direct Agreement would have enabled the Government of Malta to step in and secure a direct LNG supply agreement in the event that EGM did not honour its contractual commitments with SOCAR.

 

There never was, nor is there, any agreement or commitment by the government for the supply of LNG by SOCAR to the Government of Malta, as set out in the article.

 

The article presumably refers to the LNG Direct Agreement, the purpose of which was expressly for the Government of Malta to secure an obligation by SOCAR to continue supplying LNG to Malta in the event of circumstances that would otherwise allow SOCAR to cease doing so under the LNG supply agreement it had with EGM. In such circumstances, under the LNG Direct Agreement, the government had the option (but not the obligation) to enter into a new LNG supply agreement with SOCAR under the terms and conditions of the LNG supply agreement between SOCAR and EGM, and for a period equivalent to the remainder of its duration.

 

If the government chose not to opt for the LNG supply agreement with SOCAR under the LNG Direct Agreement, there was no further obligation on the government, and SOCAR’s recourse was only against EGM. Indeed, the LNG Direct Agreement did not contain any obligations on the government, and in particular no obligation to purchase any LNG from SOCAR. 

 

In project-financing terms, the LNG Direct Agreement was nothing more than a form of ‘direct agreement’ like the other ‘direct agreements’ forming part of the project, the intention of which is to secure the continuity of the project and, in this case, the supply of LNG (as fuel) to Malta for purposes of security of supply.

 

This agreement was only a temporary additional measure of security taken by the government to ensure the proper functioning of the project and the security of electricity supply to the Maltese islands. Once the bridge loan granted to EGM was refinanced, Enemalta had the same benefit as arises under the said LNG Direct Agreement, through a ‘direct agreement’ with SOCAR, and there was therefore no longer any further requirement for the government to ensure security of supply from the aspect of a steady supply of LNG itself. Consequently, the LNG Direct Agreement referred to in the article was eventually terminated and is no longer in force.

 

It is also misleading to state that the document was only signed by Minister Mizzi and not by the other party/ies to the agreement. It is common practice for agreements to be signed in ‘counterparts’, when the parties are not in the same geographical location. Each party signs a copy of the agreement and the agreement signed by one party would, together with the others, constitute one agreement, as though all parties had signed the same document.

 

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