Privatisation of gas, petroleum divisions making rapid progress

Plans for the privatisation of Enemalta's petroleum and gas divisions were moving ahead rapidly, with the process for the latter expected to be concluded in or immediately after summer, Public Investments Minister Austin Gatt told Parliament yesterday.

Speaking at the opening of a debate on the financial estimates of Enemalta, Dr Gatt said a request for proposals for a new 100MW electricity generating plant had been issued, but in the medium to long term he expected all generation plants to use natural gas and a request for proposals in this sense would therefore also be issued shortly.

Dr Gatt said at the opening of his speech that Enemalta faced two major challenges - meeting the high cost of fuel and converting to more environmentally-friendly sources of power.

He said Enemalta's financial performance had improved significantly in the past few years. In 2004 it had made a loss of Lm11.1 million, in 2005 it had lost Lm6.5 million and last year it had reduced its losses to Lm20,000.

Enemalta needed to balance its books and make a profit to fund its investments, because that was the only way that burdens could be lifted off taxpayers, Dr Gatt insisted. One could not argue that corporations such as this could continue making losses indefinitely.

Keeping tariffs artificially low also created cashflow problems, such that one could even have problems in paying employees. For next year alone, the corporation was expected to have a cashflow deficiency of Lm26 million, a situation which explained why the corporation currently had a debt of Lm120 million. All those who argued about cutting the surcharge in half should therefore explain where they would get the money from.

Dr Gatt said losses had been trimmed last year because the government subsidy rose to a hefty Lm21 million and administrative costs were held in check. The surcharge itself was linked to oil purchase costs and was neutral for the profit and loss account.

Enemalta was therefore at a break-even position for recurrent expenditure but had no funds for new investments which it needed to make.

The minister said some of the figures given in the annual report were impressive. In three years the corporation had installed 20,600 new services, an average of 21 per day; it had built 144 new substations and five distribution centres and laid 423 miles of new cable.

In 2000 the corporation was owed Lm33.6 million from its customers, a figure which was reduced to Lm25.3 million last year when billing was up 40 per cent because of the surcharge. Inspectors made 13,000 inspections and the number of meters found to have been tampered with had risen from 291 in 2003 to 2,700 last year. This was not a practice which could be tolerated, because it only meant a heavier burden on honest customers. It was estimated that revenue rose by at least Lm750,000 last year as a result of tougher enforcement, and enforcement would get even tougher in the future.

Enemalta last year also launched an initiative to introduce a modern and flexible metering system which would translate into a more efficient management information system. Electronic meters would, over a period of years, be introduced in all homes, transmitting consumption data in real time and enabling the corporation to introduce different tariffs for particular periods of the day.

Dr Gatt said he hoped all the staff at Enemalta would understand that antiquated work practices needed to be replaced if the corporation was to become more efficient. The government was not planning any downsizing of the corporation. Nor would workers be forced to work for sections which were privatised. But reform needed to go ahead if the bottom line was to be improved, in the interest of taxpayers. He hoped that in the talks on new collective agreements the trade unions would treat the government in the same way as they treated private companies.

Dr Gatt said he had no doubt that the power surcharge would dominate the debate. The charge was introduced just over two years ago at 17 per cent. Now everyone agreed that when international oil prices fluctuated, consumer prices - whether as tariffs or as a surcharge - had to fluctuate accordingly. Both sides also agreed that some sectors were deserving of exemptions from the surcharge. At present 21,000 consumers were exempt from the surcharge. Major industries and hotels were also exempt from the surcharge above a certain threshold so as to safeguard competitiveness.

All this had cost the government Lm21 million last year. The government had made its choices. The opposition was not saying which categories of society it felt should also be exempted from the surcharge, and how the funding shortfall would be made up. Would it be consumers, or taxpayers in general, who would have to pay more?

Enemalta made use of financial instruments prudently, but no mechanism was perfect. It was worth pointing out that in the past three months oil futures prices were consistently higher than spot prices, meaning that if Enemalta were to hedge now, the surcharge would have to rise substantially.

The surcharge was currently 45 per cent. When it was 67 per cent Dr Sant had said he would halve it, without ever explaining how. At current oil prices, reducing the surcharge to 33 per cent meant Enemalta would immediately need an additional Lm6 million. Where would they come from? No one would be convinced by claims that such funds would be found by reducing spending on receptions and travel.

Dr Gatt said he also wanted to caution that the price of fuel oil bought by Enemalta was rising rather than falling, and currently stood at $267 per tonne, from $203 when the surcharge was introduced.

The surcharge was linked solely to oil prices, Dr Gatt said, and he was again inviting the opposition to nominate whoever it wished to check the accounts, at Enemalta's own expense.

Looking to the future, Dr Gatt said Enemalta needed to increase generation, improve distribution, have cleaner power and greater security of supply.

The generation plan was published some time ago and the distribution and transmission plan to 2015 had been completed and was being costed.

A request for proposals for a 100Mw generation plant had been issued, and a call for tenders would be made among five shortlisted companies.

Suppliers had shown an interest in setting up plants, even offshore ones, linking up with the electricity grid to sell power to Malta. Dr Gatt said he had given instructions to the Enemalta board to follow these proposals closely. Talks with one of the proposers would be held at the end of this month.

With regards to the distribution network, work related to Mater Dei Hospital was nearing completion.

A request for proposals to establish a link between Sicily and Malta would be issued soon, Dr Gatt said. This was important for purposes of security of supply.

Enemalta would invest more to ensure that emissions from the power stations met current standards. He was sure that in a few years' time the only fuel used for power generation would be gas, and therefore in the near future a request for proposals from natural gas operators would be issued.

This was a medium- to long-term objective which would be totally environmentally friendly, but it would come at a cost, Dr Gatt warned. This would also mean that Marsa would eventually no longer be a site for power generation, although it would continue to have a role for distribution.

Dr Gatt said the process for the privatisation of the Petroleum Division was continuing, and tenders were expected to be issued next month.

The privatisation of the Gas Division was also moving ahead fast, and it was hoped that this would happen during or immediately after the summer. In both cases, the workforce would be able to decide whether to stay on with Enemalta or join the new operators.

Dr Gatt said he could not promise that the surcharge would be halved, but he would promise that the surcharge would continue to be calculated strictly according to the international price of oil.

Nationalist MP Michael Asciak welcomed the fact that the power stations were using low sulphur fuels and the aim was to change generation facilities to operate on gas. The new 100MW plant would also be able to run on gas.

This was greatly beneficial to the environment and would improve the people's health.

Dr Asciak said that now that the EU did not tolerate monopolies in the energy sector, he looked forward to the privatisation of the gas division for the benefit of consumers.

The Nationalist MP called on building methods to evolve so that energy saving would become a feature of new structures. It was also important to educate consumers to conserve energy.

Government studies, through the Malta Resources Authority, about the possibility of setting up offshore wind farms were laudable and he augured that more use would also be made of solar heating.

Other speakers will be reported tomorrow.