Enemalta, WSC file request for increase in tariffs as from January

Enemalta and the Water Services Corporation have filed a request with the Malta Resources Authority (MRA) for an increase in tariffs effective as from next January 1 to make good for increased operating costs.

The Infrastructure Ministry said in a statement that on the direction of the MRA, it was not announcing the scale of the revision to the tariff bands being requested until such time as the revision was approved.

The ministry said the revision retained the principles approved, following widespread public consultations, by the Malta Resources Authority, which is the regulator, that:

1. utility rates should reflect the rise and fall of operating costs;

2. except in the case of sewage, tariffs could not be used as a form of subsidy by being kept artificially low ;

3. subsidies were permissible in certain cases provided they were given directly to the consumer by the state .

The ministry said the present increase in costs was almost altogether driven by the international price of oil which rallied strongly over the past several months.

It said the price of oil rose steadily since the last tariff revision and was expected to rise even more in 2010 with the price next October expected to be higher than it was in October 2008.

The ministry said oil represented 62 percent of all of Enemalta’s expenses. It was, therefore, inevitable that tariffs had to be readjusted again to deal with the reality of rising costs.

Enemalta costs for 2010 were expected to increase by €74.2 million divided as follows:

· €47.5 million increase in the price of oil based on current future prices and notwithstanding that electricity generation decreased by eight percent. Projections of future prices were entirely driven by international market realities as they existed today and were independent of any influence or control of the corporation;

· €21.5 million being the shortfall in tariffs that would be registered since the last tariff revision in March since oil prices in the period increased by much more than was expected when the tariffs were introduced. The table below shows the parameters used in the March revision compared to the actual outcomes, the latter resulting as substantially higher:

· €4.7 million increase in the return on capital employed, representing a return on the investment in additional assets in particular the portion of investment that would be made next year on the smart meters system and the new power generating plant.

All other Enemalta costs (such as wages, administration, unbilled units, etc.) would remain the same as this year. So none of the increases the corporations would be proposing could be attributed to internal operational considerations or inefficiencies.

The increase in the cost of electricity would adversely hit the Water Services Corporation while the full operation of all three sewage treatment plants in 2010 would increase WSC operating costs for 2010: Principally, these are:

· €5.9 million increased electricity costs;

· €2.3 million additional operational expenditure with the coming on line of the Ta’ Barkat sewage treatment plant;

· €2 million increase in depreciation mostly due to the smart meter system;

· €1.7million increase in interest payments on loans used to finance investments.

In line with EU Directives, all EU member states had to take into account the principle of recovery of the costs of water services, including environmental and resource costs and in accordance with the polluter pays principle.

Malta would fall in line with this EU directive but this would not affect the consumer since the proposal would be cost neutral to the end consumer.

If both corporations were taken together it could be seen that the increases in costs for 2010 could be divided as follows:

· €74.9 million attributable to the increased cost of oil;

· €10.7 million attributable to investments in the new sewage treatment plants, the smart meters system and a new power station in Delimara.

Investment in sewage treatment plants was required for Malta to be able to comply with its environmental and public health obligations, while investment in the energy sector would improve the reliability of energy supply, enable improvements in air quality as a result of the eventual shutting down of the Marsa power station, reduce costs as a result of theft and other losses and allow families and businesses to reduce their energy costs through detailed information about their consumption behaviour. These benefits had costs that needed to be met.

On the other hand, the impact of the increases in the costs of oil were inevitable though Enemalta was presently undertaking an effort to ensure the highest possible degree of stability for consumer expenditure during 2010.

However, stability in and of itself could not entirely make up for the structural reality of increasing costs in international markets.

The ministry said that the tariff revision exercise submitted to the MRA was in line with the principles the MRA had established in the beginning of this year for such revisions.

As such, both corporations had and would submit all the details required by the MRA and would be subject to the scrutiny of the MRA’s auditors, an exercise that was already done prior to the March 2009 revision.

Both corporations would cooperate with the regulator and would follow all directions given by the regulator to have the exercise concluded as soon as possible but without prejudice to the need for a full and thorough scrutiny process.

On the direction of the Malta Resources Authority, the Ministry is not announcing the scale of the revision to the tariff bands being requested until such time as the revision is approved by the Authority.