Heavy fuel oil generates €36 million in Delimara energy savings

Enemalta is expected to generate €36 million in savings from the recently installed diesel-run power plant at Delimara power station, which is currently running on heavy fuel oil.

An Economic Partnership Programme submitted to the European Commission by the finance ministry as part of a report on the excessive deficit procedure, shows that the BWSC turbines - which Labour had claimed in 2012 would convert to diesel from HFO - have cut the cost of electricity generation to 11 cents/unit, from 17-18 cents.

The government now says an ongoing cost-reduction exercise, settling and resolving a number of locked and past-due accounts, greater billing efficiency, a €200 million capital injection, new generation engines, the Malta-Sicily interconnector and potential sale of non-strategic assets will generate nearly €75 million.

In 2012, Enemalta's total debt reached more than €830 million (12 per cent of GDP), of which 85% is guaranteed by the government. As of end-2012, guarantees to Enemalta represented about 50% of the government's total guarantees.

The energy ministry recently signed a memorandum of understanding with the China Power Investments Corporation (CPIC), one of the five largest state-owned electricity producers in China. As part of the agreement, Shanghai Electric Power, a subsidiary of CPIC will become a minority shareholder in Enemalta, providing Enemalta with a cash injection of about €200 million as well as being an AAA strategic partner.

The 200MW sub-sea interconnector between Malta and Sicily is also expected to be completed before the end of next year, when Enemalta is expected to break-even.

The next step will be the construction of a 200MW gas powered plant which also provide gas for Delimara's 149MW diesel engine plant, which will be converted to operate on gas.

In its report, the finance ministry also said that it will reduce the current poverty trap by introducing incentives to ensure that being in work is always better than being dependent on social benefits. "The government is studying ways of introducing a tapering system so that those who are long-term unemployed and join the labour market do not lose their benefits at the rate of 100 per cent. The government is also seeking to introduce tax incentives so that household do not loose income if a second bread winner joins the labour market."

The government has committed itself to reducing the deficit to 2.7 per cent by year-end 2013 in contrast to an end-of-year 2012 deficit of 3.3 per cent.

On its part, the European Commission projected a much higher deficit of 3.7 per cent of GDP for 2013, despite very similar macroeconomic projections.

"The discrepancy between the two sets of forecasts was predominantly due to more conservative estimate of the impact of measures undertaken by the government to contain the public expenditure pressures and the active drive to collect more revenue, including past unpaid arrears," the finance ministry said.

The ministry is now producing revenue and expenditure forecasts on a monthly basis for cash data and on a quarterly basis for accrual adjusted data.