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Electricity tariff reduction will save businesses €50m

Reducing business electricity tariffs by 25 per cent would save them €50 million, according to Energy Minister Konrad Mizzi – but they are going to have wait until 2015.

The government promised to reduce business tariffs in spring 2015 – a year after the tariffs were reduced for residential customers. But the Malta Chamber of Commerce, Industry and Enterprise appealed to the government to consider reducing them now, as a way to incentivise investment and job creation. In Germany, electricity tariffs were actually reduced for business first and then for residents.

However, reducing the tariffs for Maltese businesses now would mean €50 million more added to Enemalta’s losses, Dr Mizzi explained.

The most important factor is that we will be reducing generating costs ... with the new gas-fired power station

“We were able to reduce the tariffs for residential customers – which cost us around €27 million – through the €30 million advance payment from Shanghai Electric, which is being made over a one-year period.

“But we cannot reduce the tariffs for businesses until we reduce the costs of generating electrictiy. By next year, a number of factors will come into play which will enable us to do so: we have reduced theft and are addressing inefficiencies. But the most important factor is that we will be reducing generating costs,” he went on.

The government is doing this through the construction of a new gas-fired power station – which is to be ready by 2015 – and an interconnector cable, which should be in place by December 2014 to deliver electricity from the European mainland by the first quarter of 2015.

“The savings we make will be enough to compensate for the reduced income from business. Electricity from Electrogas will have an average price of 9c6 per unit. For the interconnector we are going through a competitive process as we speak, but it will be a bit higher than that – of course, without considering the cost of the infrastructure,” he said.

Dr Mizzi said that the 25 per cent reduction will be applied to each tier as there are different ones for business depending on their consumption. However, the intention is to reduce them for all companies across Malta – whatever their size and sector – at the same time.

The lower tariffs will have a significant impact, especially when one considers that electricity costs can account for 5-6 per cent of a manufacturing company’s costs, and that for a hotel, it would mean €250,000 off a €1 million bill.

But Dr Mizzi reluctantly admitted that businesses will just have to hang on.

“It is already June. At least they know that in nine months’ time they will have a 25 per cent reduction and that the prices will not increase for five years. This is very important. During that time, the gap between our electricity costs and the EU average will narrow,” he said, adding that reports he found when Labour got into government said tariffs would have to go up by 30 per cent for Enemalta to become sustainable.

The government is under pressure from international agencies and the European Commission to make Enemalta sustainable.

Enemalta will actually be cutting its costs by more than the reduction it is giving businesses, meaning that its losses will get lower and lower each year. Last year, it reported a loss before tax of €31.6 million, forecast to go down to €19.6 million this year, thanks to the €30 million advance being paid by Shanghai Electric.

“We have no choice. It has to become profitable within a 3-4 year period. We need a decent return in accordance with shareholder objectives.”

Shanghai’s €320 million overall injection will pay off barely half of Enemalta’s €850 million debt. The rest will have to be repaid in different programmes. At the moment, the government is in discussion with banks on which loans can be repaid, depending on the covenants.

“We will soon reach an agreement so that by the end of year, all the transactions can be executed. All Enemalta’s debt to government will also have been paid by then. Apart from lowering the debt, we will also have less investment to make in the future as the conversion to gas will be funded by SE – we pay only a fraction – leaving us to channel our funds towards distribution, especially in the north and where there are most power cuts.”

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