An overhaul of the country’s energy sector should decrease fiscal vulnerabilities and increase competitiveness, the credit rating agency Moody’s said today.

It noted, however, that the planned reforms were ambitious and there were risks to their successful implementation. It also warned that the corporation’s financial health could be jeopardised by a premature cut in tariffs.

The agency referred to the memorandum of understanding signed between the Government and a China Power Investments Corporation and said that although the plan was still in its infancy, any gradual steps were likely to help reduce Malta’s exposure to the sector’s contingent liabilities and attract greater investment to diversify the economy away from its tourism base.

Moody’s said that the first stage in this reform initiative involved a shift in the country’s energy mix to significantly reduce its electricity generation costs and introduce a conservative approach to reserve power and renewable sources.

“The Government’s plan envisions diversifying energy sources through an interconnector linking the grid to mainland Europe through Sicily, and gradually shifting production away from fuel-oil generation towards a cheaper, cleaner, gas-powered energy matrix.

“The second stage involves tackling inefficiencies and restructuring Enemalta’s debt. As a result of its exposure to oil prices and operational inefficiencies, Enemalta posted losses in 2011 and 2012. These efforts have yielded tangible progress, with more substantial results likely to come.

“We do note, however, that the planned reforms are ambitious and there are risks to its successful implementation.

“For instance, the building of new infrastructure relies on the interest of private partners, adding a degree of uncertainty as to whether a suitable partner may be identified.

“Moreover, Enemalta’s financial health could be jeopardised by a premature cut in tariffs should anticipated savings be delayed.

“Nonetheless, we believe that the sovereign will benefit from a less volatile Enemalta and a more resilient energy sector that is likely to attract greater investment to the country as input costs fall.”

The full report can be read in the pdf link below.