A further reduction in electricity tariffs could harm Enemalta’s recovery process that will see it reach break-even next year, Konrad Mizzi said.
The sliding price of oil has prompted calls from the business community for another reduction in electricity tariffs over and above the 25 per cent cut that came into effect in April.
But the Energy Minister yesterday insisted power tariffs were reduced for the first time last year for households when electricity prices in the EU were rising.
“In 2014 the average electricity rates in the EU increased by 2.9 per cent while here in Malta we were reducing tariffs by an average of 25 per cent,” Dr Mizzi told The Sunday Times of Malta.
He said Enemalta cut costs and improved revenue collection but it was still expected to make a loss this year despite the falling price of oil.
“The target is to reach break-even next year and start turning a profit in 2017 when the gas power station and infrastructure would have been functioning for a full year,” he said.
Dr Mizzi noted that it was often the case over the past decade that a drop in oil prices was muted by a stronger dollar.
Between 2008 and 2013 the average oil price was €69.90 per barrel and during the period tariffs were 25 per cent higher than today, he added. “Last year the average price of oil stood at €74.59 per barrel and yet we reduced tariffs by 25 per cent.”
Dr Mizzi was echoing a similar warning delivered by credit rating agency Standard and Poor’s last July. The agency said it would downgrade Enemalta’s rating if tariffs were trimmed to the point of making it difficult for the utility company to recover costs.
The minister said tariff reductions were based on a seven-year business plan that anticipated the savings Enemalta would make as a result of the changeover to gas from heavy fuel oil.
While consumers have benefitted from electricity cuts, other savings made by Enemalta were redirected to an investment programme to improve the distribution network, he added.
“The €60 million Enemalta will invest over the next three years to improve the network is coming from its own funds,” he said.
The power company is building four distribution centres, one in Manoel Island that is expected to address problems of power outages in Sliema and its environs.
This was also an important aspect for businesses, he said, since ensuring security of supply was important.
The €60m Enemalta will invest over the next three years to improve the network is coming from its own funds
The Labour Party’s electoral pledge was to cut tariffs for households by 25 per cent in 2014 and businesses by the same percentage in 2015. The reductions were based on the premise that a new gas power station would be up and running by March this year.
However, the gas project deadline was shifted to July next year prompting many to question how it was possible to still go ahead with the tariff reductions.
The Opposition has often said the reductions were possible as a result of greater efficiency from the oil-fired BWSC plant and the interconnector, questioning the need for the gas project.
Dr Mizzi was unfazed by the criticism, insisting savings derived from the BWSC were closer to €18 million per year rather than the often-quoted €50 million. The €50 million figure ignores other costs including those linked to abatement measures and the disposal of toxic waste, he added.
The current mix of energy sources – the oil-fired BWSC and old Delimara plants, and the interconnector – would deliver a higher electricity price than the proposed mix when the gas project comes on stream, he added.
The 23-year-old Delimara plant, known as D1 and which is characterised by the tall chimney, has to be phased out, which would necessitate a replacement. And the second Delimara plant, D2, will be retained as a backup since it runs on the more expensive gasoil.
Government plans were based on an average price of electricity of 9c6, derived from a mix that included the gas project and the interconnector. This has prompted questions as to whether Malta would end up with a bad deal by entering into an 18-year power purchase agreement with Electrogas, the company building the gas plant.
Dr Mizzi acknowledged the price of electricity from the interconnector varied between 4c per unit to 18c without factoring in return on capital and other fees. But he insisted the characteristics of electricity demand in Sicily where similar to those in Malta and most of the time the cheaper prices were available when least needed.
“In reality the price of electricity produced by the gas power station alone will average at 6c9 and it has to be pointed out that Enemalta will have the option to buy electricity from the BWSC plant (which will be converted to gas), the new gas power station and the interconnector.”