Malta has been identified as one of the EU member states whose electricity prices do not cover the cost of production.
“Malta has shortfalls of revenues in the electricity system because the regulated integral electricity tariffs for consumers (especially for households) are too low to cover the corresponding costs borne by the utilities,” a report published by the European Commission states.
The study calls this an electricity tariff deficit. Its benchmark is 2012, so it does not take into consideration the government’s more recent decision to cut tariffs by 25 per cent this year.
However, an EU official told Times of Malta that, from the study’s point of view, this decision will further increase the country’s electricity tariff deficit if not accompanied by lower production costs.
“Obviously, since the gas plant being proposed by the government is not yet on stream, the island’s electricity tariff deficit will grow even higher until the costs of production are lowered,” the official said.
“Until now we don’t know when this will take place and so we can only assume that Malta’s electricity tariff deficit has now entered the red zone,” he added.
Enemalta reported continued losses which clearly indicate that tariffs are well below costs.
“Enemalta has accumulated some €0.87 billion of debts, an equivalent of 12 per cent of GDP and showed negative profits and cash flows in the recent years,” the report states.
The company suffers from a huge amount of unpaid electricity bills
“As Enemalta is the only supplier of electricity to final customers and the electricity prices are fully regulated, the company’s losses may be considered as a sort of tariff deficit, so much so that the revenues from the regulated tariffs are not sufficient to cover the costs.”
The report says that Enemalta’s situation results from various factors. “The company has very high costs due to its oil-based generation facilities, which makes it difficult to fully pass on the costs to consumers,” the study says.
“The company [also] incurs high costs related to its ongoing investment in an interconnector with Sicily but also has operational inefficiencies and suffers from a huge amount of unpaid electricity bills.”
While stating that the decision to cut the tariffs from March 2014 might continue to impact negatively on the company’s profitability and increase its debts, the study quotes Fitch credit rating agency saying that the new gas plant, together with the partial sale of Enemalta to China, “should ensure the long-term sustainability of Enemalta”.
The lower household tariffs this year had to be financed through a €30 million advance payment by Electrogas, which will build the plant.
Another 25 per cent cut in tariffs will be given to businesses next March. The plan was for the new gas plant to have come on line by then but this has now been delayed.
The study shows that Bulgaria, France, Romania, Hungary and Latvia also had tariffs that did not recoup the costs of production.