Murder on the Malta Express

by Carlo Bonini

  In 2013, the government owned the energy provider Enemalta, a behemoth in a perpetual state of quasi-bankruptcy because its owner was keen to keep consumer rates as low as possible. Obviously, a state-owned company never quite goes under because its owner has access to taxpayers’ pockets and would always see to it that it did not.

  The new PL government wanted to ‘restructure’ Enemalta’s finances. It renamed the corporation ‘Enemed’ and sold a third of its stock to the Chinese state-owned Shanghai Electric Power.

  Brian Tonna was at the heart of the deal. He sat right in between the negotiator for the Maltese side, Energy Minister Konrad Mizzi, for whom he had secretly set up a New Zealand trust and a Panama shell company, and the negotiator for the Chinese side, an Accenture Strategy employee called Cheng Chen.

  Scouring through the Mossack Fonseca leaks, Daphne Caruana Galizia learnt that Brian Tonna had helped with the setting up of a British Virgin Islands (BVI) company for Cheng Chen through Mossack Fonseca. She also found emails from Brian Tonna’s office to Mossack Fonseca showing that they were setting up a bank account for Cheng Chen as well.

  Cheng Chen’s hidden nest in the BVI was set up at the same time that Brian Tonna was setting up a spare one for himself. Tonna set up ‘Willerby’, a company that an FIAU investigation would later find was used to pay thousands of euro into a Pilatus Bank account held by Keith Schembri, the prime minister’s chief of staff.

  Predictably, Cheng Chen and Brian Tonna’s companies also held accounts at Pilatus Bank, the clearing house for the corrupt.

  All concerned deny any wrongdoing.

  Brian Tonna went deeper into the energy restructuring programme.

  Upon his election in March 2013, Joseph Muscat made Brian Tonna and Nexia BT his advisers in the prime minister’s office. One of their first overt operations, in parallel with the covert operation of setting up three Panama companies, was to draw up a feasibility report for a new power station.

  The issue was simple. How to fix Malta’s steep energy bills? The answers could be, first, to use the undersea electricity cable from Sicily to import more electricity. Second, to build an undersea pipeline to bring oil or gas to Malta. Third, to build a brand new Liquid Natural Gas plant fed by ships.

  In a matter of a few weeks, Nexia BT published a report that confirmed the assumptions the PL had made before the March elections. It concluded that the third option was the way to go: a new LNG power station was indeed desirable.

  Nexia BT and Brian Tonna personally were the lead evaluators of the contractors commissioned to sell energy to the government. Having blessed the decision to go with LNG, they would also get to choose the company which would get the fattest contract in Maltese public procurement history.

  The choice would fall on a group called the Electrogas Consortium. The ownership of the consortium is fiendishly complicated but the single biggest Maltese player is a man called Yorgen Fenech, one of the island’s richest men, an entrepreneur, casino owner, and man about town.

  The consortium included some highly reputable names and some less so. It was led by London Stock Exchange listed Gasol PLC, an international group focused on the supply of natural gas in contracts mostly in Africa and central Asia. Gasol was the lead partner in the bid holding 30% of the consortium. Another 30% was held by a grouping of Maltese businesses called GEM Holdings. 20% each were held by the ‘technical’ components of the consortium, Siemens, the German manufacturer, and Socar, Azerbaijan’s state-owned energy company.

  GEM Holdings Limited in turn is owned by four entities: three companies and an individual. The three companies represent three of the largest family conglomerates in Malta. Tumas Energy Limited and Gasan Enterprises Limited hold a third each of GEM Holdings Limited. The other third is split again into thirds. Two-thirds — that’s 23.9% of GEM Holdings – is held by CP Holdings Limited for Malta’s Apap Bologna family.

  Then there’s a 9.1% share in GEM Holdings Limited held by a company owned solely by Yorgen Fenech. Yorgen Fenech is CEO of the Tumas Group that owns Tumas Energy Limited. He is the scion of the Fenech family that owns the Group and he is also CEO of GEM Holdings Limited. So Fenech’s company owns a bite of of a bite of the Electrogas Consortium and by virtue of this 9.1% share he is also personally an indirect owner of the consortium.

  Yorgen Fenech is also close to Brian Tonna, the man responsible for evaluating the consortium’s bid for the energy contract.

  It would later emerge that Brian Tonna’s Nexia BT did not just evaluate Electrogas’s bid on behalf of government. Nexia BT was also the auditor of GEM Holdings Limited, part-owned by Yorgen Fenech.

  A national audit office investigation found this potential conflict of interest disturbing. When asked to explain, Nexia BT produced a copy of an engagement letter dated April 2014. This meant that Nexia BT was appointed auditor of GEM Holdings after – not during – its evaluation of the Electrogas Consortium. The law requires companies to record the appointment of auditors in the public registry. GEM Holdings had not done so, so the national auditor remarked that the proof that Nexia BT had produced in its defence was not conclusive.

  The National Auditor reported:

  An engagement letter to this effect was provided by GEM Holdings Ltd to this Office; however, verification with the Malta Financial Services Authority was not possible.

  This potential conflict is especially significant when one considers that the evaluation of this bid proved to be more of a negotiation of the terms of the contract to accommodate the shifting needs of Electrogas than a thorough examination of what was best for the Maltese consumer.

  The consortium outlived many setbacks that might well have finished off other contenders.

  The first setback was the collapse of its lead partner. Gasol PLC, the owner of the company that held 30% of Electrogas ran up debts approaching €100 million and at one point had to borrow €1 million from one of its subsidiaries merely to pay urgent bills. Eventually, in 2018, the company went into administration.

  Gasol’s shares in Electrogas were sold to the other three partners who upscaled their holdings so that Electrogas was now divided equally three ways. The sum paid for those shares was never disclosed. Gasol’s own financial statements left a blank space where their accounts were supposed to report the value of the sale.

  The transfer of shares from Gasol to its partners was concluded on 22 July 2015.

  The Panama Papers would reveal that on that very same day Konrad Mizzi’s Panama company Hearnville was transferred from its administrators – the front working for Mossack Fonseca in Panama – to the New Zealand trust set up for him by Nexia BT.

  Konrad Mizzi dismissed this as an irrelevant coincidence. Which it very well could have been. Except that a detail places it in context. Mossack Fonseca did not only secretly handle the financial affairs of Konrad Mizzi. Its customer profile also included Gasol’s parent company African Gas Development Corporation Ltd. The shared connection with Mossack Fonseca may also be another coincidence.

  All concerned deny any wrongdoing.

  With the exit of Gasol, the rest of the consortium lost the promised source of the capital funds needed to build a new LNG power station. They would have to come up with the money themselves but at €450 million any bank would have needed considerable collateral to take such an enormous risk.

  If only the government would remove that risk.

  It did.

  Firstly, the government leaned on a bank that would advance a cool €450 million.

  Although Malta’s government is the biggest shareholder of Bank of Valletta it only owns a fifth of its shares. But the bank used to be state-owned and the government still has legacy controls. It chooses the bank’s chairman who holds a lot of influence on the big banking decisions of the group. The bank was asked to lend €450 million with a government guarantee of €360 million. To give an idea of just how considerable this loan was, Bank of Valletta’s total revenue in 2018 was just over €230 million
. The loan Electrogas needed was almost double the Bank’s net annual revenue.

  Such exposure could have broken the Bank of Valletta. So the government provided Electrogas with its guarantee for €360 million of the €450 million it needed to borrow. If Electrogas went bust the government would step in, which meant the consortium’s (and the bank’s) risk was now to be carried by taxpayers.

  The guarantee was supposed to be temporary and capped for 22 months, but on the eve of the June 2017 elections the guarantee was extended again. The press would only find out about this in November 2017.

  But that was not all. While the government was facilitating a private consortium to build a new power station, the framework of the deal was such that the power station itself would remain the property of its builders. They would then sell the energy they generated to the grid owned by the state-owned energy distribution company Enemed.

  After the sale to Shanghai Electric of 30% of Enemed, the term ‘state-owned’ became a slight misnomer. ‘States-owned’ became closer to the mark as the governments of Malta and China now owned the corporation. Enemed had its own relatively new fuel-oil power station already. It had come on line in 2012. And in 2015 a new undersea interconnector between Malta and Sicily was commissioned.

  Enemed had plenty of sources from where to buy electricity. Electrogas’s risk was that it could end up generating excess capacity. Their financial model could go south.

  The government again shifted the goal-posts to accommodate Electrogas and undertook to purchase enough energy from Electrogas to help the business stay in the black no matter the demand and no matter if other sources of energy could provide Maltese consumers with lower-cost electricity.

  In April 2018, Juliette Garside of The Guardian reported on an analysis by experts in fuel markets about how the Electrogas deal was impacting Maltese consumers’ expenditure.

  Benchmarking indicated Malta was paying a significantly higher rate than similar purchases from the wider market negotiated at that time by Greece, Italy, and Turkey. Estimates by The Guardian suggest Socar paid $40m less for the gas than the sum it charged Malta.

  That’s because Socar, the Azerbaijani state-owned company, which owned a third of the Electrogas consortium did not actually sell its own gas to the Maltese company.

  Instead it purchased gas from the market (from Shell, as it happens), set its own hefty mark-up cushioned by the government’s purchasing guarantee, and then proceeded to make extra bucks from its share of Electrogas’s own profits. Those profits were generated without much start-up risk as the financing of the operation was guaranteed by the government.

  From Socar’s point of view this was as win-win-win as they come. But, as The Guardian’s analysts put it, Malta was ‘losing hand over fist’. And the government had locked itself into the deal for 18 years.

  The Guardian’s April 2018 analysis was subsequently confirmed by Malta’s national auditor who reported in November 2018 that, if the government simply switched off Electrogas’s power-station and replaced its electricity by buying it through the under-sea connector from Sicily, it would have saved millions in the period under review. The generous contracting arrangements with Electrogas – and particularly with the Azerbaijan oil company Socar, which is the fuel supply component of the outfit – prevents it from looking for the best deal.

  Local consumers pay the difference.

  This was not the first time Socar walked away with a handsome deal courtesy of Konrad Mizzi. In 2015, the national auditor reported the energy minister likely overstepped his authority and interfered to ensure Enemed entered into a fuel price hedging agreement with Socar. Konrad Mizzi denies this.

  The auditor found considerable chunks of the paperwork it expected on the fuel price hedging deal missing. This was probably why it could not absolutely confirm its suspicion that Mizzi had interfered in a purely commercial matter that gave Socar an advantage.

  After the 2017 election, Mizzi was transferred to the tourism ministry, at face value a demotion. It subsequently turned out that Mizzi was still leading the negotiations with Electrogas (despite the appointment of another energy minister) and his signature is on the final contracts.

  On 22 February 2017 Daphne Caruana Galizia posted one of her cryptic curtain raisers. The headline for that post was ‘17 Black – the name of a company incorporated in Dubai’.

  There was no text. Only a collage of unflattering pictures of Keith Schembri, Konrad Mizzi, John Dalli, and Joseph Muscat.

  If you play blackjack or take a roll at a casino roulette table, 17 Black would mean something to you.

  Daphne was two months away from publishing her story on the Egrant scandal when she played the card of telling the ‘Panama Gang’ that she knew about the Dubai company. She was still working on what 17 Black meant, when she was killed eight months later.

  At some point before she was killed, a source within Electrogas leaked to her a dump of emails and internal communications from the consortium’s servers. The information, combined with the Panama Papers, contained the elements of an entirely new and massive corruption scandal. Daphne understood the scandal was there waiting to be unearthed. The general election in June, the bullying and the isolation, the apparent futility of it all, were not going to stop her. But a car bomb did.

  After her death, a group of journalists from around the world coordinated by the French-based Forbidden Stories group kept her work going. That is how the Daphne Project came about. La Repubblica, the Italian newspaper where co-author Carlo Bonini works, is a member. Journalists from The New York Times, The Guardian, and Süddeutsche Zeitung that had led the Panama Papers story in the first place, France 2, The Times of Malta, Reuters, and several others shared the effort of looking through the notes, the files and the leaks that Daphne was working on when she died to see if they could complete her work.

  The Daphne Project published findings on fuel smuggling in Maltese waters, on Mafia infiltration of Malta’s gaming sector, the sale of Maltese passports to crooks, off-shore nests hidden by Maltese ministers, the Malta branch of the Azerbaijani laundromat, even stories about the alleged assassins who killed Daphne and their connections with powerful people in Malta.

  There’s no doubt, however, that the biggest finding of the Daphne Project was the link that finally connected the Panama scandal that exposed Keith Schembri and Konrad Mizzi with the Electrogas scandal.

  In February 2016 Daphne had reported that Brian Tonna’s Nexia BT set up Panama companies Tillgate for Keith Schembri and Hearnville for Konrad Mizzi.

  In March 2016 the Panama Papers were published by the ICIJ, confirming this information.

  The Panama leaks would also include emails between Nexia BT and Mossack Fonseca discussing the worldwide hunt for bank accounts for Tillgate and Hearnville. The leaked communication stops at December 2015, the date of the last data dump from John Doe, the ICIJ’s source in Panama.

  Up to December 2015, Mossack Fonseca had not succeeded in securing bank accounts for its two Maltese clients. Banks repeatedly turned them down because of their political exposure.

  The email exchanges leaked with the Panama Papers show that Keith Schembri and Konrad Mizzi claimed their Panama shell companies would be conducting international business in recycling, remote gaming, infrastructure projects, maritime projects, fisheries, and tourism. They were going to conduct this business while serving as full-time government minister and senior official.

  While briefing Mossack Fonseca, Brian Tonna’s Nexia BT said its clients Konrad Mizzi and Keith Schembri were expecting their companies to earn $2 million in their first year of existence alone.

  In the same correspondence, Nexia BT identified two Dubai companies as ‘target clients’ for Tillgate and Hearnville. The two Dubai companies were named 17 Black and Macbridge. That email is, serendipitously, from December 2015. If it had been sent any later, we might never have known.

  It is unclear whether Daphne had become aware of the correspondence th
at had identified 17 Black and Macbridge as ‘target clients’. The matter became public knowledge in April 2018, published by the Daphne Project six months after her murder.

  But Daphne did know this: that 17 Black was at the centre of the Electrogas scandal.

  FIAU investigators working before its diligent former director Manfred Galdes resigned had looked into 17 Black and found that the Dubai shell company had received money from the Maltese agent that handled the purchase of an off-shore gas tanker, Armada LNG Mediterrana, that would be berthed alongside the new Electrogas LNG power station to supply it with fuel.

  The investigation was suppressed but the information was eventually leaked to The Malta Independent in May 2017.

  The FIAU investigation found that 17 Black received a deposit of $200,000 in July 2015 from Orion Engineering Group, a company owned by Maltese businessman Mario Pullicino, agent for the company that supplied the Armada. Mario Pullicino denied the payment was intended as a bribe.

  There was a second payment into 17 Black the FIAU had found, and that was considerably larger. $1.5 million was deposited into 17 Black’s account in November 2015 by a Seychelles company called Mayor Trans Limited. Mayor Trans Limited is owned by Rufat Baratzada, an Azerbaijani businessman.

  Rufat Baratzada holds several business interests, some of which are in the United States. To make this fat payment to 17 Black he passed his funds through Latvia’s third largest bank at the time, ABLV. When the money went through, the Latvian bank flagged the payment as ‘suspicious’.

  ABLV’s standards of suspicion were notoriously low. In February 2018 the European Central Bank shut it down after a run on the bank caused by a US financial intelligence unit (FinCEN) notice that blacklisted the bank as a money-laundering engine.

  Within three months a Latvian bankruptcy lawyer, Mārtiņš Bunkus, 38, was shot point blank in the streets of Latvia’s capital Riga. Many in Latvia suspected that the murder was connected to the bank going bust.