Ratings agency Standard & Poor’s has revised its outlook for Enemalta to stable from negative, based on the government’s plans to go for gas and secure investment from a Chinese company.

S&P affirmed its B+ long-term corporate credit rating on the corporation. “The outlook revision reflects our understanding that the government of Malta is working on a comprehensive restructuring of its power sector, with an aim to reduce the island’s reliance on very high-cost, oil-dependent electricity generation,” the agency said.

“As part of this restructuring, Malta is near finalisation of a transaction with Shanghai Power Electric, a subsidiary of China Power Investment Corporation, which will inject about €200 million in equity in return for a minority stake in Enemalta.”

It is unclear, however, if these efforts will restore profitability at Enemalta or be passed on to consumers to the detriment of Enemalta

This would relieve the immediate pressure on the liquidity position and mark the start of a deleveraging process.

However, S&P still expects Enemalta to generate negative profits and cash flows in the near to medium term, adding that the long-term structural plan to restore profitability had not been made public and was not factored into its projections.

S&P noted that to reduce the country’s high cost of electricity, Malta was aiming to convert its existing plants to run on cheaper natural gas and was looking to import electricity via a submarine cable from Sicily.

“It is unclear, however, if these efforts will restore profitability at Enemalta or be passed on to consumers to the detriment of Enemalta.”

The agency said it would upgrade Enemalta if it believed its restructuring would allow it to achieve financial stability in the long term, by lowering its cost of electricity procurement and charging the full price for electricity to consumers.

Only a comprehensive rationalisation of its cost structure and elimination of its exposure to volatile oil prices would stabilise its performance.The agency would lower the rating if it believed Enemalta was unlikely to receive the funds from Shanghai Electric or if there were any signs of weakening government support.