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Enemalta advised to raise bills in 2011

‘Country not ready for increases’

Enemalta was advised to raise electricity prices at the end of 2011, The Sunday Times has learnt.

Government’s belief was that families and industry were in no position to support any further energy increases

KPMG provided the Government with two main options in a “draft” report commissioned by the energy corporation in October 2011.

Both options took into account a lower night tariff, which is a core pledge of the PN’s elect-oral programme.

The first option was titled “standard increase” and would have streamlined the cost per unit for both heavy and light users. Therefore, heavy consumers would no longer be made to pay more for each unit consumed, leading to increases of more than 20 per cent for the lightest consumers.

The second option was to have a “proportionate increase”, where all consumer bands would be hiked by a specific percentage. In this case, residential tariffs would have increased by around 21 per cent, while non-residential would have increased by around 12 per cent.

Calculations were also provided in the report to show how prices would change given two night tariff options: €0.174 per unit and €0.165 per unit.

According to its disclaimer, the report was meant for “discussion purposes only” and was prepared in accordance with terms of engagement dated January 2011.

The figures are based on fuel prices in October 2011.

The KPMG report also made other recommendations regarding “fixed charges”. It suggested an increase of 70 per cent of both the annual service charge and the maximum demand charge “compliant with legislation and the guiding principle”. The report takes into consideration a number of factors affecting Enemalta’s financial situation, including its outstanding debt (which Standard and Poor’s flagged in its recent downgrading of Malta) and an asbestos cleanup worth €5.5 million to be paid over three years.

The report also takes into consideration the return on capital employed regarding the interconnector, eco-reductions and feed-in tariffs. However, it pointed out that there was “under recovery” in 2010, with the “main drivers” for this being higher consumption, fuel prices and corporation costs.

If the report’s advice was taken, the Government would have increased tariffs with an election round the corner.

The Sunday Times is informed that this document is one of the Enemalta reports Labour leader Joseph Muscat has been persistently hinting at since a televised debate with Prime Minister Lawrence Gonzi.

Last November, Dr Muscat had drawn attention to a document by the European Commission which he said “revealed” the Government’s plans to raise prices again in the next legislature.

“Energy inflation is forecast to strengthen under the assumption of an increase in electricity prices,” the European Commission’s report had said.

KPMG is the same company that Enemalta engaged to undertake a cost analysis of Labour’s energy proposals. The report was presented by the Finance Minister at the PN headquarters and showed that tariffs would increase by around five per cent when taking into consideration certain costs that PN said were left out of Labour’s equation.

Labour insists it can reduce tariffs by an average of 25 per cent in the first two years of the next legislature by making a concerted move towards liquefied natural gas which includes building a new power station.

The Sunday Times asked Finance Minister Tonio Fenech to confirm whether Enemalta had been advised to increase tariffs and explain why the Government decided against doing so.

Mr Fenech said international institutions and credit-rating agencies had remarked on “various occasions” that Enemalta should have increased tariffs to cover rising energy costs. But the Government’s belief was that families and industry were in no position to support any further energy increases so it committed itself to support and subsidise Enemalta to cover the increases.

The Sunday Times also asked whether the Government planned to increase daytime tariffs as part of the PN pledge to introduce reduce night tariffs or whether it ruled out the need to raise tariffs again in the next legislature.

Mr Fenech did not give a commitment, except to offer the “cheapest possible prices in a sustainable, safe and secure manner”.

“Questions over price and tariff forecasts are hypothetical precisely because no one is able to determine or anticipate what energy prices will be over the next years,” he added.

On night tariffs, he pointed out that the interconnector will enable Malta to tap into the Italian market where night-time energy prices were “significantly cheaper” than day-time prices.

“By the first quarter 2014, Government will be passing on these savings to families, businesses and industry,” he said.

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