Enemalta Rating Lowered was the title of an item that appeared in late January. It carried the subtitle “Delays to adjust tariffs”.

One has to give the background and go back some years and, particularly, to what happened late in 1997 and early 1998 because of the new tariffs that had been published in November 1997. But to understand better the situation at that time one has to recall what happened even in prior years.

The last time the electricity tariffs were raised before the general election of 1996 was in January 1981 by a Labour government. In January 1983 and in January 1987, the same Labour government had cut the tariffs first by five per cent and then by a further four per cent.

A Nationalist government was elected in May 1987 and the rates remained the same for 10 years, until November 1997, after a Labour government had been elected in October 1996.

In the early 1990s, Enemalta started building Delimara power station and the Nationalist government did not finance this expensive project. On the contrary, the government decided to raise excise duty on petrol and diesel without allowing Enemalta to pass this increase on to its clients. Thus, the additional revenue to the government came from corporation sources at a time when the corporation was investing heavily on the Delimara power station. The funds for this investment had to be borrowed, with Enemalta being the first local organisation able to raise a $100 million syndicated loan from the International Money Market in London.

The financial situation of Enemalta deteriorated further before the election of October 1996 because Water Services Corporation decided to take over the billing from the government centre at Swatar promising Enemalta it would be able to start issuing bills within three months from taking over. The taking over started in June 1996 but was completed 20 months later, in January 1998. During this time, the corporation had to borrow more funds to meet its obligations.

A Labour government was elected and, naturally, the new Labour minister was informed of the situation and, very rightly, he did not accept my figures but requested the help of an audit firm. They brought two foreign experts, one an economist and the other an engineer, to make a report on the electricity tariffs and submit various options as to what was required.

Enemalta was only asking for an increase in tariffs that would raise its revenue from electricity sales by €9.3 million, that is by 10 per cent. But the government did not want to increase tariffs for hotels because the tourism industry was going through a difficult period. It wanted to raise the industrial tariff by one mil per unit (Kwh) and the rest from the domestic sector. The reasoning behind this was that the increase of tariffs for the domestic sector would be set off by the increase in wages through the cost-of-living-adjustment mechanism.

But after these tariffs were published in November 1997, hell was raised by the General Workers’ Union, the Union Ħaddiema Magħqudin, the Chamber of Small and Medium Enterprises – GRTU, other institutions and the Nationalist Party, which knew very well why the new tariffs were required. There were well known persons who also joined this band of contestants, who should have known much better but perhaps they had a hidden agenda.

The Labour government and the Labour Party had their internal problems and decided to go for an election in September 1998. The Nationalist Party promised to withdraw the rates and revert them back to those that existed in 1996.

The PN was elected but, thank God, did not keep its full promise for the rates were only reduced but did not go back to those of 1996. Still, the scientific exercise on the electricity tariffs was lost. This was a huge strategic mistake that is haunting the country all the time.

In spite of this, it was my duty to ensure there were enough funds for further investments in generating, transmission and distribution sectors.

Although the Nationalist government kept making petty increases in the electricity tariffs the situation kept going from bad to worse. Then came Minister Austin Gatt who, instead of addressing the inefficiencies of Enemalta, decided to tackle those officials who had done their best to keep Enemalta floating despite the difficulties.

In this period, Enemalta lost much of its financial controls, started facing allegations of irregularities, higher fuel costs and a worsening international financial situation. I left Enemalta in February 2004. Rates were raised some three or four times since then but the situation is still very problematic as, now, customers had to come to terms with these frequent increases, giving rise to difficulties and making people poorer.

Now people would understand why Standard and Poor’s defined Enemalta’s problems as consisting of “delays to adjust tariffs”.

Tariffs should not form part of the political game; they should be transparent. There are no free lunches but it is very important that financial control in Enemalta is again instituted, with officials leading by example. Only hard work can overcome this problem. Higher wages and perks would just complicate the situation further.

Have a look at the Electricity Authority of Cyprus to understand how things should be managed. Collection of bills should be a must as, otherwise, the situation would deteriorate further and the rating agencies would lower the rating further, thus increasing operating expenses with the corporation having to pay higher interest rates.

The author is a former financial controller of Enemalta.