Energy liberalisation: How PN threw a lifeline to a sinking government

With the government losing its reputation for competence amidst an electricity crisis that exposed under investment in the distribution network, the Opposition had a field day.

But instead of reaping the benefits and presenting itself as the cautious and responsible alternative to Labour’s incompetence, the PN botched it.

The party rushed headlong into the malaise with a radical proposal to liberalise the distribution market – presumably, the proposal would see private companies competing with Enemalta in delivering energy to households and businesses.

But while such a proposal can help in defining the Opposition as a centre-right pro-business party embracing neo-liberal EU policies, it came at a time when distrust of big business is greater than ever.  Here are four reasons why this PN proposal can backfire.

1. Breaking the golden rule: Opposition parties should avoid turning the spotlight on themselves by coming up with proposals that generate uncertainty and fear of future shocks at a time when everyone is focused on the government’s failures, and no one is talking about bills.

The PN should have learned from experience that stability in energy pricing is one of the current government’s most popular policies. The fact that people do not live in anxiety over the next utility bill is one main reason why Labour retains support despite growing resentment and distrust. Although the long-term sustainability of subsidies meant to guarantee lower prices is questionable, the Opposition cannot afford to come up with proposals which end up generating more uncertainty among people. People naturally fear change in a sector which may have a direct impact on their livelihoods.

The promise of competition between rival providers offering different packages to consumers in the same way as mobile phone companies do today, hardly compensates for the loss of security such a proposal evokes. The PN may well have concentrated on its eight other sensible proposals rather than casually mentioning liberalisation in a press conference, apparently unaware that this was going to attract the headlines. And although the PN may have naively thought that people still associate liberalisation with lower prices, it has given Labour an excellent opportunity to lash back by pointing out at experiences in other countries where liberalisation has increased prices.

2. Losing its magic: We are no longer living in the 1990s when people blindly believed in the magic of the free market after years of centralised economic and trade planning.

On paper, liberalisation may be an effective tool in opening sectors dominated by entrenched monopolies to competition with added benefits to the consumer. For example, the removal of the white taxi monopoly has largely benefitted consumers due to lower prices. But can one apply the same logic to essential services like energy distribution in a sector where the private sector would end up using public infrastructure paid for by taxpayers to make a profit? And while the PN in the 1980s had voiced the popular frustration at autarky associated with an overbearing state, nowadays people are more distrustful of the dominance of the market by the usual fat cats. Moreover, while presently the public can hold the government to account for any shortcomings in the energy sector, private actors may be less accountable to the public. Even at an international level distrust in corporate power has eroded public trust in the ability of the state to regulate markets to the extent that state intervention is once again fashionable even in right-wing circles. In this sense the PN is swimming against the current, even more in a sector which depends on a strong and stable grid capable of absorbing greater investment in renewables.

3. A change in policy: Over the past decade the PN has been critical of Labour’s crony capitalism, having opposed public-private partnerships in the health sector, the sale of a minority stake in Enemalta to a Chinese government company, and the sale of the BWSC power station to Shanghai Electric. The latest proposal would see private companies making use of Enemata’s public infrastructure to make a profit.

In its electoral manifesto the PN had reiterated its commitment to “restore sovereignty over the provision of energy,” in a clear reference to the PL’s policy of partly privatising Malta’s energy supply. It also promised to “retain control over the source of electricity and distribution rights.” The PN had also rightly criticised under investment in the energy distribution system promising “substantial investment” in the sector.  There was no hint of the state shedding its control over energy distribution in the party’s energy policy so far.  In this sense the latest proposal jars with the PN’s distrust of ‘corrupt’ deals which saw government shedding public infrastructure to the private sector and foreign governments.   And while questionable private investment in energy provision did at least contribute to investment in new infrastructure enabling Malta to shift from heavy fuel oil to natural gas, liberalisation in distribution would simply result in private companies using already existing infrastructure, especially in a scenario where Enemalta retains ownership of the grid and simply rents its infrastructure to distribution companies.

4. Defeatist attitude on EU: The PN is right in questioning the government’s preparedness in the face of the expiry of a derogation from an EU directive which could force the country to liberalise energy distribution. But the PN could have done so by putting the onus on government, while supporting an extension of the derogation by another eight years.

The PN is right in saying that the derogation from Article 4 on an EU directive regulating energy markets will expire in 2027. Thanks to negotiations conducted by a past PN government, the EU had granted a permanent exemption to Malta from rules which would have excluded Enemalta from energy distribution. But the exemption preventing third parties from competing with Enemalta in distributing energy will expire in 2027. Although the deadline has been noted in several government plans, the government has never drafted a roadmap on how it intends to proceed with this deadline. But instead of pushing for an extension of the derogation by another eight years as foreseen in the directive itself, the PN wants Malta to liberalise the sector now.  Neither is the PN making a case to convince the EU of Malta’s particular circumstances dictated by the small size of its internal market as it had done in 2008. This also suggests a defeatist approach to negotiations with the EU.  Surely the PN is also proposing a robust regulatory framework including strict conditions on the new operators like automatic compensation in the case of power cuts.  But would not consumer interests be better served by pushing for reforms in Enemalta to foster meritocracy and make it more accountable to citizens?