Enemalta promises financial reform and cost cutting

Enemalta is planning to refinance its debts of almost €450 million and embark on a thorough cost-cutting exercise, acting chairman, William Spiteri Bailey, said yesterday. He said the corporation’s losses over the past years, especially between 2007 and 2009, were primarily due to the fact that energy tariffs were not covering costs and investments.

Reacting to the announcement that international credit rating agency Standard and Poor’s had downgraded Enemalta’s rating, Mr Spiteri Bailey, an auditor by profession, echoed the government’s defence of the situation.

He said the main reason for the debt highlighted by the rating agency was the fact that energy tariffs in the past were not pegged to the variation in the corporation’s costs for energy generation. Neither did the tariffs reflect the heavy investments made by the corporation, he added, pointing out the situation had now been settled, following discussions with the Malta Resources Authority, through an agreement that should see Enemalta recoup its investment over the years.

Former Enemalta chairman and now deputy president of the Chamber of Commerce, Enterprise and Industry, Tancred Tabone, pointed to the short term repercussions of the downgrading. “I find it serious, worrying and expensive,” he admitted.

He said the downgrading was serious because total cost recovery would have to be reflected in the tariffs. Because of the credit rating, the corporation could be forced to borrow at higher rate of interests, which would push its costs up, he explained.

The point was reflected in comments made by the Chamber of Commerce, Enterprise and Industry, which said the downgrade would “invariably” impact the corporation’s cost of borrowing, which was one of its major cost items and which “may exert additional pressure on fuel and utility prices” because of the full cost recovery approach. “The Malta Chamber insists the country must now endeavour towards avoiding further increases in utility rates, which would bring about loss of competitiveness and will also have social repercussions. It would also impact on the retail price index and exert a second round effect on competitiveness through the cost of living adjustment,” the Chamber said.

Besides the impact on prices, the Chamber said it hoped the new rating would not hamper Enemalta’s projects aimed to strengthen the reliability of energy supply, “which is crucial for Malta’s future economic development”.

Economist Karm Farrugia questioned why Standard and Poor’s credit rating had been done now. He also asked why had Enemalta’s credit rating been lowered whereas that of Malta, which guaranteed Enemalta’s borrowing with the lending institutions, had not.

He said that because of lack of this information, he could only speculate by asking whether the government planned not to issue letters of comfort to institutions when they lend money to the corporation.

Another economist, Lawrence Zammit, said at this point comments about the effects of such a downgrade in the corporation’s rating would be “purely speculative”.