Enemalta would have to spend close to Lm30 million over the coming three years on new power generation and distribution facilities, Public Investments Minister Austin Gatt told Parliament yesterday.
Speaking at the opening of a two-day debate on the estimates of Enemalta, the minister said the corporation over the past year had always had more power generation capacity than demand. Power cuts had been the result of urgent maintenance works or incidents such as when contractors damaged power lines.
A short-term generation report, which has just been completed, showed that by 2010 Malta would need to have invested in two or three new power generating units costing between Lm9 million and Lm11 million. These units would replace old plant at the Marsa power station while raising capacity by 50 megawatts and improving the power station's efficiency rating.
Meanwhile the corporation would be spending Lm10 million this year alone to improve the power distribution grid and to cut down on distribution losses.
Introducing the debate, Minister Gatt said that 2004 had been the start of a long process of restructuring Enemalta. He still viewed Enemalta as a problematic corporation and it would take up to 2007 before its problems were unravelled.
Nonetheless, over the past year substantial progress had been made in the setting up of a new management structure. The top management positions were now in place and all posts in midde management would be in place in the coming months.
The corporation, he said, had varied problems, including surplus workers and financing issues.
A human resources audit was being carried out to get a clear picture of where all Enemalta workers were placed and what skills they possessed, with a view to better utilisation.
Minister Gatt said Enemalta's final focus must be the consumer. It had to offer better service and the most cost-efficient work methods.
However, the fact of higher prices for a better service could not be escaped. Any form of subsidy from the government would have to come from the taxes levied on the people if the latter were not made to pay directly for the products they used.
When Enemalta had replaced sulphur fuel oil with light sulphur oil, it had incurred an annual cost increase of Lm8.7 million. This had been footed by Enemalta, but the corporation's funds came out of taxes.
Dr Gatt said Enemalta's losses had amounted to Lm2.3 million in 2002, Lm1.8 million in 2003 and Lm10.6 million in 2004. For 2005 it was forecasting a loss of Lm5.5 million. These were not encouraging figures and the strain on Enemalta's cash flow was clear.
Just over 72 per cent of Enemalta's expenses went for fuel purchases, over which costs it had little control.
A serious plan was needed to reduce operating costs, and this meant going into the work practices.
The restructuring which had been started would ensure good cash flow and prepare the corporation for competition on the local energy market from next year.
Stock levels must be keener: these were currently too high, blocking up cash and incurring more interest. Some procedures had been in place for 20 or 25 years and had never been questioned.
The corporation's cash flow must be strengthened, especially by collecting the many millions of liri still owed in arrears for the power supply. Some Lm1.1 million had been collected from seven to eight per cent of consumers, and arrangements had been reached with seven per cent of others. Official letters had been sent out to non-payers, with a warning that supply would be cut off.
Efforts were also being made to reduce distribution losses. The solution, however, lay in remote automated meter reading, which would also make possible different rates at different times.
Dr Gatt defended the power surcharge announced in the budget, saying the basic argument was simple. The international price of oil had risen, so a higher national bill could only be expected. No surcharge had been imposed in 2004 because the government had respected the budget, which at Lm38.5 million had been close enough to actual cost of Lm40 million.
Calculations for 2005 anticipated an increase of Lm7.7 million in spending over 2004, and it was those Lm7.7 million that would come from the surcharge. This meant that the surcharge was not on what had happened in 2004, but on what was expected in 2005. The surcharge would come to zero when the fuel bill was back to Lm31.6 million, which was Lm10 million more than in 1999.
Dr Gatt said the government and the corporation would do everything possible to keep costs low. A fuel procurement committee had been set up to advise Enemalta on the use of financial instruments available to buy oil. The corporation had contracted an American firm experienced in this field to be represented on the committee.
On alternatives to fossil fuel the government had committed itself to five per cent of power generation from alternative sources. Enemalta was ready to buy these alternatives, but it must be understood that alternative energy cost more than fossil fuel.
Labour MP Joe Mizzi said the Nationalist government was failing in the energy sector, despite its importance for the economy.
This was a government which had been in office for practically 17 years, during which it had not drawn up a strategic energy plan that tied in with economic and environmental needs.
The government was continuing to blame the workers for Enemalta's inefficiency. The corporation's annual report continually spoke of restructuring the workforce in order to save on salaries and overtime.
Yet the PN government had built a power station at Delimara which was outdated as soon as it started operating, and costs were practically the same as the much older Marsa plant.
Indeed, contrary to what was promised, the Marsa plant remained essential for Malta's energy needs. Furthermore, capacity from Delimara could not be fully realised because of a poor distribution system.
Consumers were continuing to experience power cuts and generation costs had also risen steeply because high-consumption emergency/reserve generation equipment was in constant use.
Despite the investment made in the power stations, such was the lack of planning that there had been power cuts because the distribution system could not keep up with demand.
The Malta Resources Authority had also not come up with a strategy for alternative energy, despite having been asked to do so three years ago.
Turning to the surcharge on power consumption, Mr Mizzi said it was a tale that the reason for the surcharge was the increase in the price of crude oil, since Enemalta costs had actually not risen.
The fact was that Enemalta's debts had gone through the roof, reaching Lm150 million. The corporation was practically bankrupt.
Enemalta had to collect Lm48 million in current assets. Could they actually all be collected?
It was no wonder that the corporation had been put on credit watch by credit-rating agency S&P. The government, in a panic reaction to have the credit watch removed, imposed the surcharge on power and water bills, effectively transferring the corporation's burdens on to the people.
The cost of power generation had risen last year as the corporation started using expensive light sulphur fuel oil. This had not happened directly for environmental reasons but to compensate for environmental failures elsewhere.
The running cost of the power station last year was Lm60.5 million last year, Lm2 million over 2003. That cost was accounted for by the switch to light sulphur, not higher oil prices.
The government also raised the price of kerosene ostensibly because of abuse in the use of this product. This excuse was banal. Why had action not been taken against those who abused?
The Prime Minister had also spoken of the fraud in the sale of duty free diesel, which he had said involved millions of liri, and promised tough action. But that had not happened and the persons involved were let off the hook and only required to pay a fine, because they were staunch Nationalists. What was the involvement of the Enemalta chairman in all this?
Mr Mizzi observed that after having mistakenly discontinued hedging arrangements, the government had now set up a Fuel Procurement Advisory Committee and invited the opposition to nominate a representative to it. The opposition had refused the invitation, arguing that this should be a purely technical committee, but it should report to Parliament twice a year. The minister refused as the committee's decisions were commercial and technical. Mr Mizzi said the Opposition still believed that there should be accountability.