Privatisation of gas, petroleum divisions to be launched by July

The government is planning to set the ball rolling for the privatisation of Enemalta's petroleum and gas divisions by July, Public Investments Minister Austin Gatt said yesterday.

He told Parliament during the debate on the Enemalta report and financial estimates that the government wanted Enemalta to withdraw from the petroleum and gas business before the liberalisation of the market to focus exclusively on the efficient generation and distribution of electricity.

The minister also said that the government would be seeking private funding for new power generating plants needed at Delimara, with Enemalta then buying the electricity produced at an agreed price.

He said a decision needed to be taken in the short term over whether the new generating plants would be combined cycle or diesel. Enemalta had originally opted for two diesel plants but Mepa had said that using such generating plants may not meet EU emission standards.

Whatever the case, a new generating plant would have to be in place by 2008.

Since the combined cycle plants would have a bigger generating capacity than the diesels, if a combined cycle was installed in 2008, two of the boilers at Marsa power station would be permanently decommissioned and once a second combined cycle came on stream, there was a possibility that the Marsa station would be completely phased out. However there was a raging argument among the technical experts on the wisdom of actually shutting down Marsa. EU funding may be sought for the first combined cycle plant whereas the private funding option would be resorted to for the second.

In the long term, Dr Gatt said, it appeared that power generation would have to come from gas but no decision had been taken yet on the nature of this gas and whether this would be sourced from a pipeline or otherwise.

It was a fact, however, that in Italy, all planned development involving LNG had been stopped because of problems that had developed. The possibility of setting up an LNG depot was being considered but it was too early to discuss siting.

Dr Gatt said studies were continuing on the possibility of a link-up with the European power grid but it needed to be pointed out that it would currently cost more to buy power from Italy than to generate it here.

It may be good to have a link with Europe as a reserve source, but should one spend some €70 million for a facility which would be used only in emergencies?

Furthermore, in linking up with Europe, Enemalta would lose exemptions from competition rules it currently enjoyed because of Malta's closed system.

In any case, by 2020, the corporation had to increase its production capacity by at least another 200 mega watts from the present 420 mega watts.

At the opening of his speech, Dr Gatt said he was very pleased with Enemalta's financial performance last year.

Turnover had risen to Lm167 million up 25 million on 2004, while the cost of sales rose on the same pattern.

Non-operating expenses had declined by Lm800,000.

The corporation's loss before tax had declined from Lm11 million in 2004 to Lm7.2 million in 2005.

The minister explained that one of the main reasons for the turnover increase stemmed from the power surcharge which was initially 17 per cent. That surcharge had not been enough to cover the outlay on fuel and the government was issuing Lm6 million to cover the shortfall.

There had also been a Lm1.5 million increase in "other income" mostly from the leasing of oil tanking facilities as Has Saptan.

Dr Gatt said the decrease in administrative expenses was significant because it had come about despite an increase in commissions and salaries.

Also significant was the way how a saving of Lm1.7 million was made in interest charges after loans were negotiated and much better interest rates were achieved.

These positive results had been acknowledged by ratings agency Standard and Poor's which had renewed its favourable rating for the corporation. But this rating would be lost, along with the new, advantageous interest rates if the current revamp of Enemalta was not continued, the minister warned.

He said that for the current year, turnover was expected to rise by Lm53 million to Lm220 million while non-operating expenses would be unchanged.

It was being projected that last year's loss of Lm7.1 million would be reduced to Lm1 million in the current year.

Dr Gatt said the oil purchases bill would rise between Lm27 million and Lm30 million this year on the same volume as bought last year.

Revenue to meet this additional outlay would come partly from the surcharge and a substantial part also from the government subsidy.

Whereas last year the government gave some Lm10 million to Enemalta under various headings, this subsidy would rise to Lm23 million this year, including Lm13 million to cover the higher oil bill. The rest would go on subsidies or payments for gas and street lighting, among other headings.

It was expected that the crackdown on the theft of electricity would yield a saving of Lm2 million.

Dr Gatt explained that in the projections for this year, the estimates for the Petroleum Division included a downward revision of the profit margin on the petroleum division in view of the upcoming liberalisation of fuel imports and distribution. This decrease, estimated at Lm8.3 million) would be compensated for by an equivalent increase in excise duties, meaning that the result was price neutral for the consumer.

The decrease in profits for Enemalta as a result of this exercise would be refunded by the government through a public service obligation agreements which would provide Lm2 million for social cases, Lm1.3 million for Enemalta's reserve capacity and Lm5 million because electricity was being charged below cost.

The government subsidy on gas would be Lm1.2 million this year, up Lm300,000 from last year but still not enough to cover all operating costs. Dr Gatt said difficulties with Mepa on the granting of development permits for the new gas plant in Benghajsa had been overcome so the process could start in this sector, too.

Dr Gatt said Enemalta was embarking on structural reforms to reduce its inefficiencies. The corporation's management had already been restructured and all managers had a definite contract including performance bonuses linked to specific financial targets that their departments had to achieve.

The ICT department, Dr Gatt said, would be the crux of a restructured corporation. An official was building specifically integrated utility business systems thanks to which the methodology of billing customers would be changed in a way that would enable the corporation to read meters through a connection between households and a central base. Such an automated system would put Enemalta in a position to charge different rates for different times of the day or night, meter readers would not be laid off even if their role would change.

Enemalta was also reducing its workforce through natural wastage, which meant that the 200 employees who had reached retirement age last year had not been replaced. The corporation would end 2006 with 1,700 employees, Dr Gatt said. No early retirement schemes would be offered.

Most of all, the corporation had to deal with internal inefficiencies. By changing outdated work practices, Dr Gatt said, Enemalta could save up to Lm1.5 million a year, and this would only be translated into a reduced surcharge.

There was an outstanding collective agreement with Enemalta engineers which the government would seek to settle in the near future. He felt engineers should stop receiving overtime and get an overall compensation for their extra work as this would eliminate abuse.

Enemalta had also started discussions on the collective agreement of workers and Dr Gatt said warned that outdated work practices had to change.

It was evident that departments such as aviation could do with four workers per shift instead of 14 workers while in the gas section, for example, some Lm370,000 would be saved if employees worked four shifts instead of five.

The minister asked whether it was acceptable that the GWU imposed a condition that it would not negotiate with the corporation's chief executive officer, Anthony Rizzo.

He reiterated that Enemalta was seriously tackling electricity theft and it would insist that people who were prosecuted and convicted would get prison sentences if necessary.

In the first three months of this year, 116 had been caught out of 200 inspections made.

Besides being fined, the electricity supply of such persons would be cut and the corporation would bill those involved on the basis of its consumption estimates for the previous five years plus an extra10 per cent and a reconnection fee.

Another initiative was an exercise, started 18 months ago, to reduce Enemalta's debts. The corporation had a debt of Lm28 million in 2004 and this had been reduced to Lm24 million. Another Lm6 million would be cut next year.

Dr Gatt said that as main distributor, Enemalta needed to review its tariffs as the surcharge system could not be sustained for much longer.

Other speakers will be reported tomorrow.