Author: George Mangion - Senior Partner at PKF Malta
Published on Business Today: 3rd August 2023

Finance Minister Clyde Caruana said Malta has declared its own Exclusive Economic Zone (EEZ) in the central Mediterranean, with the potential of extending its responsibilities by as much as 71,446 sq km beyond territorial waters.  He said an EEZ could hold huge economic potential in the coming years, not just for fisheries, but even artificial islands, wind farms, solar farms, wave-generated electricity and revenue from shipping movements.

Speaking in parliament last month, Caruana said that Malta exercised responsibility over its territorial waters, extending to 12 miles (an area of 3,829 sq km) and the fisheries zone, extended to 25 miles (11,479 sq km). The EEZ could potentially be 226 times the size of Malta.

Clyde Caruana said Malta has a continental shelf of around 71,000 square kilometres, while the proposed exclusive economic zone would comprise the area between 12 and 25 nautical miles from Malta’s shores, or around 7,500 square kilometres. Caruana also said the zone could be used to introduce projects in emerging technologies such as carbon storage and hydrogen production.

Government is considering options for floating wind and solar energy farms; the possibility of developing clean hydrogen; and extending the million-dollar tuna ranching industry for export (provided extra fish quotas are secured). Like investments in onshore energy infrastructure, investments in offshore energy projects tend to be long term, capital intensive and largely dependent upon the exercise of regulatory powers.

Offshore energy investments are not only crucial to meet the increasing demands in energy consumption, but also to maintain the levels of energy production capacity because a number of upstream oil and gas infrastructure is conscious of the drive to reduce dependence on fossil fuels. Attracting foreign capital would be a challenge, so far but rumours have it that a competitive tender is to be issued in Q4.

Based on a PMC issued in May 2022, one assumes that Malta will open its EEZ waters for the exploitation of offshore energy partly to strategically convert from LNG to green energy and partly to open the gates for export of hydrogen.  So far, a high percentage of energy imported from Italy via the inter connector is sourced from non-renewable sources. Therefore, the penny dropped that Malta has focused entirely on generating electricity using LNG imported from Socar - a state agency owned by the Azeri state.

Ideally, this needs to change and currently islanders are annoyed with constant power cuts, so nobody is bothered to assess our future, that is catching up with the Hydrogen revolution. The offshore energy sector of most countries has been primarily controlled by multinational energy companies operating under long-term exploitation concessions and production-sharing agreements.

Malta is a safe bet for investors, as it guarantees full protection during commissioning period.  In some countries, the investors are exposed to considerable political and regulatory risk, because unforeseen changes in the legal environment of the host country, may seriously undermine their financial feasibility or even result in the expropriation of the investment altogether.  So far, Malta’s tax code has no fiscal incentives to investors in EEZ, as is the case with other sectors such as aviation, manufacturing, tourism, fintech and gaming.

One hopes that a serious attempt is made to lobby Castille to draft financial incentives to attract international investors as was the case when a deal about Electrogas (a large power plant burning fossil fuel) was struck with the Azerbaijan’s regime, three local investors and Siemens (here government granted Electrogas a bank guarantee of €360 million). It is good to note that a recent bill on 4 July, is proposing various amendments to both the Civil and Criminal Codes as well as other ordinances in order to set up an exclusive economic zone some 12 nautical miles offshore from the country.

Can we potentially use this resource and turn it into a source of export revenue? By the installation of offshore renewable facilities this will strengthen the country’s position as an innovation leader in new sectors and stands tall to issue tenders with a focus on renewable energy projects. Sceptics ask - is this a pipe dream or a tangible next step in seriously replacing use of LNG and start generating alternative green gases such as hydrogen and ammonia.

Regrettably, there will be no renewable projects on Hurd’s Bank, which is a shallow area in international waters off the Marsaskala coastline currently used for ship bunkering. This location which due to its shallow water, is ideal for renewables but is strongly resisted by the maritime lobby. Readers ask - why is the use of shallow waters around Hurd’s bank so important?

For years, the shallow waters served as bunkering exercises for ship owners known as ship-to-ship (STS) transfer operations. Such activities involve the transfer of a vessel’s cargo, be it petroleum, chemical and gaseous cargoes, to another vessel moored alongside it.  Presently, the majority of these operations take place at Hurds Bank, outside Maltese territorial waters.

STS transfer operations generate considerable ancillary support services, such as provision of supplies, launch service, ships’ agency services and so forth. Vessels are also subject to anchorage fees on a 24 hours basis when collecting the fenders from outside the Valletta Port.  So, there is no chance, to accommodate multiple floating PV panels or the anchorage to the seabed of powerful wind farms in Hurd’s bank.

This is another obstacle but not an insurmountable one, since technology of using floating platforms in deep waters has advanced albeit it is more capital intensive. Certainly, as the top priority is consolidating a fragile inland grid system when cables were tripping during two weeks of a heatwave. Surely, we need to make up for lost time. It was in 2001, when an offshore policy was first discussed in Parliament and so far, no tangible investment was undertaken except for a dubious one in a remote Montenegro wind farm.

Now with funds available from EU Green Deal, it is providential for Malta to achieve a serious reduction of emissions to reach net-zero by 2050. It is interesting to note, how in the past the European Union had launched a ten-year integrated policy paper styled “The National Energy and Climate (ENCP) Plan” directed to each of its member states in order to meet overall greenhouse gases emissions targets.

The Energy and Climate Plan seriously addresses all five dimensions of the EU Energy Union: de-carbonisation, energy efficiency, energy security, internal energy markets and research, innovation and competitiveness.

It goes without saying that private investments in marine renewables are indispensable for the EU to meet its climate commitments, safeguard energy security and improve the competitiveness of the EU energy market.

Similarly, the International Energy Agency (IEA) has reported that a sustainable development scenario, according to which countries can get on track with their climate change and energy access goals, presupposes an additional 4.6 trillion US dollars in extra capital offshore energy investment by 2040.

Author: George Mangion - Senior Partner at PKF Malta
Published on Business Today: 3rd August 2023
Get in touch: info@pkfmalta.com