We’ve got the power | Karmenu Vella

These are busy times for Karmenu Vella. Not only is he up to his elbows preparing the Labour Party's electoral manifesto - but he is also one half of the public face (alongside Konrad Mizzi) of the PL's energy proposal: a proposal which has is many ways defined the entire campaign to date.

But before turning to the finer details of this controversial project, I start with a question concerning Malta's economic situation (he is, after all, spokesman for economic affairs). At present, Malta's national debt weighs in at 75% of GDP. That's not including the €800 million debt incurred by Enemalta - which would push up the debt percentage figure to 90% of GDP.

To put that into perspective: Spain's debt is currently 78% of its GDP... and the country is officially in a full-blown crisis. In view of Malta's alarmingly similar debt levels... was it wise for the Labour Party to commit itself to implementing Budget 2013 - which promises to raise expenditure across the board, on the arguably unrealistic expectation of economic growth - 'lock stock and barrel'?

Vella concurs with the assessment of Malta's debt... but not with the doubts regarding Budget 2013.

"The Labour Party has been saying all along that the State's finances are not as sound as the Nationalist Party is trumpeting. Yet they are so deceitful as to make 'finanzi fis-sod' their main electoral platform..."

Malta's finances, the former minister argues, are not on a sound or secure footing at all. And it is not just Enemalta that inflates Malta's debt, either.

"With government's €5 billion euro debt amounting to 75% of GDP, and almost another €1.3 billion in government entities' debt, we are approximating the state where, for every one euro that the country produces, the state incurs one euro worth of debt. Government has been very good at ballooning the debt... especially since Tonio Fenech became Finance Minister under GonziPN."

It would appear, then, that Karmenu Vella lays the blame squarely on the shoulders of the present finance minister. But isn't this a little unfair? After all, much of Fenech's term has coincided with a global economic crisis of almost unprecedented proportions...

But Vella waves aside that objection, arguing that the seeds for Malta's debt had been sown long before the crisis reared its head.

"It is a fact that Malta first exceeded the Maastricht benchmark of debt to GDP ratio of 60% under GonziPN, with Tonio Fenech holding the unenviable honour of building up 40% of Malta's debt since he became responsible for Malta's finances. Since 2004, we have never had a debt below the Maastricht established benchmark for sound finances. Unfortunately, GonziPN has not been as creative in finding solutions to problems of its own making. How many have challenged the government on its claim of sound finances?"

As it happens, Vella took on that challenge himself, in an article in Property and Life Magazine Issue last month. "I indicated not only the extent of the problem, but also outlined the consequences of this problem... as well as the means to resolving it through economic growth. This was confirmed a few days later by the Standard & Poor's report. The discredited government proposed its budget so late in the year, full in the knowledge that it would be difficult for any new government to change halfway through 2013. In reality, we opted to commit ourselves to implementing the 2013 Budget to give the strongest possible signal of no shocks and uncertainties to our families, businesses and the economy. This was in contrast to the government's irresponsibility of not calling an earlier election, even though it knew it had a democratic deficit and could not muster a majority in parliament..."

Besides, Vella adds: a newly elected government in March would be thinking and working on the budget for 2014, and not for 2013.

On the subject of a newly elected government: Labour is currently making a lot of promises, involving a lot of expense... at a time of economic uncertainty, and despite not having a very clear idea of the precise state of the nation's finances. So what would happen if the incoming government finds (as happened in 1996) that the financial reality does not permit these promises to be kept?

Karmenu Vella takes the opportunity to stress that the difference between Labour and PN on this front is that Labour does not make promises it knows it cannot keep.

"We are not making electoral promises to win votes at the expense of the State finances. We are not making promises in isolation. What is being offered is a combination of measures that together would enhance our growth potential and a fair distribution of income..."

Yes, but that doesn't really answer the question. If it proves impossible to deliver on all the electoral promises currently being made by Labour... which would be the first to be retracted?

Predictably, Vella stands his ground. "We will deliver. We are convinced that our policies and measures are in the best interest of the country. Our measures have not only been evaluated in financial but also in economic and social terms. Their combined effect will have a significant positive effect on our economic growth so that financial stability is assured without the need for new taxes to fund our proposals. We see our proposals grounded in economic growth so that we are confident that we will deliver on all our electoral promises..."

This, he argues, is in keeping with the PL's view that the solution to our problems is not austerity.

"As we have seen elsewhere such solutions are self-defeating. The short-term target of monetary policy is not the reduction of the total debt (this will be in the medium-to-long term) but the control of the rate of growth of the total debt by means of controlling our annual deficit. This is where the government is failing badly in spite of its hype and lack of transparency..."

Here he digresses to outline what he describes as the sheer incompetence that has led us to this pass.

"GonziPN has been going off target for so long that it is simply no longer credible. Tonio Fenech continues to insist that the deficit for this year will be 2.3% of GDP, despite IMF, EU and Central Bank predictions. And most recently Standard & Poor's has warned that the deficit to GDP ratio is more likely to be around 3%. I would say more than 3%... unless of course some miracle were to happen in the last month of December."

But where exactly would Vella say that the present government's economic policy is flawed? After all, the government is not pursuing an austerity agenda of the kind we now see all over Europe. On the contrary, it seems to share Labour's belief that the solution to our problems lies in sustained economic growth. So if the PN's basic policy is the same as the PL's... how does Vella account for the PN's failure to reach targets?

"Wrong priorities, financial mismanagement and sheer waste... these are some of the reasons for this state of affairs. Corruption is another reason that is now evident to all."

At the same time, however, Labour's energy proposal has itself been dubbed unfeasible (by the PN, to be fair)... and even if we reject that assessment on grounds of political bias, Labour still plans a major investment in energy infrastructure running into hundreds of millions of euros.

In times of economic sluggishness, some would call that "wasteful", too. Vella however sticks to his party's line that Labour's energy plan cannot be taken in isolation.

"Our roadmap is a doable business plan with a main aim to stimulate economic growth. Lower energy rates, less bureaucracy, more transparency and accountability will reduce significantly the cost base for our small businesses, making them more productive and profitable. We are determined to fight corruption and will not allow a clique to dominate either country or business. Our plan is to reduce the inflationary pressure which erodes industry competitiveness and the purchasing power of our families' income. Our endeavour will be focusing on enticing more women participate in the labour force and to improve the educational and technical competencies of our work force. This will improve our nation's productivity. Our policies will aim to restore good governance, financial stability and a fairer distribution of economic benefits among our society..."

Looking into the PL's plan in slightly more detail, it transpires that a Labour government would (to some degree, anyway) divest itself of around 40% of Enemalta, which would be transferred to the private sector.

The PL has since given assurances to the General Workers' Union that no Enemalta jobs would be lost as a result of this transaction. But how can Labour make that sort of commitment, when a) it hasn't yet negotiated the terms of this semi-privatisation, and b) it also claims it doesn't have any interested parties already in mind?

Vella however denies plans for a partial privatisation. "Enemalta will not be privatised and will not be divesting any of its shareholding," he insists. "None of the existing operations will be transferred to the private sector. Enemalta will retain responsibility for converting the BWSC plant to gas and operating Phase 2 of Delimara Power Station. Enemalta will also maintain its distribution and supply operations. What our plan envisages is that a private company will be allowed to make a new investment in the energy sector in Malta, and that Enemalta will buy 40% of Malta's electricity needs from this company. This is no privatisation of Enemalta, either in whole or in part..."

As for the fate of the employees, Vella argues that the bigger threat would be to simply leave everything in the hands of the present government.

"As things stand today, Enemalta is close to insolvency. This is what threatens the livelihood of its workers. Gonzi's solution to this problem is to further raise electricity bills... as was promised by the PN to the EU, and also foreseen by Standard & Poor's if Malta continues to depend totally on heavy fuel oil for its electricity generation. Yet another price hike in electricity by GonziPN would alternatively put the livelihood of many other workers in other industries at risk."

According to Vella, Labour's proposal would not only reduce tariffs to the benefit of small businesses, industries and families but would also contribute financially to paying off Enemalta's debts and setting it on a steady course towards financial stability.

"The PL's plan is based on a power purchasing agreement which is a model extensively used all over the world. Our plan is based on established technology, due processes and good international practice. The private sector will be an independent operator from Enemalta. It will generate electricity and sell this electricity to Enemalta at a cheaper price than Enemalta itself is generating. In buying this electricity, Enemalta will be saving about €187 million. The existing debt of Enemalta will be serviced and repaid by Enemalta partly through the €187m savings realised through this transaction. Enemalta will then sell that electricity through its distribution network to families and businesses."

This model, he adds, requires a new investment by the private sector in clean gas generation.

"The new generation equipment and gas supply infrastructure will be totally financed by the private sector. Hence there will be a new operator in the electricity generation market which will complement Enemalta."

Meanwhile, other concerns have been raised with regard to the apparent monopoly enjoyed by Enemalta. Joe Pace, a former Enemalta manager, recently observed that linking Malta to the European grid via an interconnector - expected to fall into place by March 2014 - may change the conditions under which Malta applied for a derogation from community law to protect Enemalta's monopoly.

Will this derogation still apply, if more than 5% of Malta's energy is no longer produced by Enemalta? And if not, wouldn't this spell the end of Enemalta as we know it?

Vella here specifies that the current derogation applies to the supply market (sale of electricity to customers), not to the generation market which has already been liberalised: a state of affairs that a Labour government will seek to retain.

"But while the generation market has been liberalised, no new operators have entered the market due to barriers to entry erected by government. The PL roadmap addresses this issue and will ensure that the generation market will have a new player which is selected through a competitive process. This will improve local market conditions which reflect the spirit of generation market regulations. It will ensure a healthy mix which includes Enemalta, the new operator and the interconnector which is owned by Enemalta."