Tonio Fenech - Enemalta restructuring will not involve higher tariffs

Updated at 5:09pm.

Finance Minister Tonio Fenech has reacted to a downgrade of the energy corporation Enemalta by Standard & Poor's with an adamant stand that none of the burden from the company's losses would be passed on to consumers.

"S&P's main message is that Enemalta has to keep being sustained by government, given its strategic importance for the island... the government must take measures to take on the burden of Enemalta's debt, to limit the losses of the energy corporation," Fenech said.

Fenech said families were already making a sacrifice with the high utility tariffs. "There is a limit to the sacrifice we can ask people to make. Our priority in our economic policy to generate work, and we don't want to imperil jobs."

The minister said government was working on a number of fronts to face Enemalta's challenges, referring to the restructuring of its €600 million debt, and spread it better over a period of 25 years - something that was hoped would be finalised by this year.

Fenech said a number of vacancies were already being identified, particularly in distric and distribution centres, in order to carry out the relocation of workers, and added that Enemalta was limiting recruitment while the situation is assessed. Fenech touted alternative employment for any surplus workforce. "Restructuring and reorganising Enemalta in collaboration with the unions is required, but it is still very early in the process for any assumptions to be made – before the necessary evaluations are made," he replied when asked about whether any redundancies will take place.

"There will be a number of workers who'll be found as a surplus to the corporation's needs. As soon as Enemalta concludes its restructuring debt process we'll be in a better position to say how many workers will be transferred to other sections or whether we'll offer early retirement plans. However, this will all be done following consultations with the workers' unions," Fenech said.

Government has already decided to absorb costs paid by Enemalta over schemes such as the feed-in tariffs and the eco-reduction. The two of them alone cost the corporation €25 million per year.

Fenech did not exclude additional budgetary cuts to the €40 million already implemented to finance the €25 million and other costs which government might absorb to reduce Enemalta's debt. He also said that the absorption of the €25 million was according to EU regulations, since consumers, and not Enemalta, benefitted from the schemes.

"Choices have to be made," Fenech said on further budgetary cuts. "If we want our government to remain in control of its budget, we must make those choices. It's better to cut from sectors which we can do without today than increase the utility bills."

Fenech also said that the delay in Enemalta's refinancing of its loans was down to an "elaborate process" of negotiations with financial institutions and banks, which negotiations were "complex".

The finance minister also said that Enemalta's €600 million debts will not form part of national debt: "Government is not giving a blanket subsidy to Enemalta. The corporation will always remain responsible of shouldering its debt."

Fenech put special emphasis on the rising price of oil, especially in the context of growing fears of militarisation against Iran. He said prices had reached the $115 per barrel price.

Standard and Poor's report yesterday said that Enemalta's credit quality is constrained by ongoing delays in refinancing its outstanding debt, and that its performance would be hampered by rising oil prices and inflexible capital expenditure programme.

The agency lowered its long-term corporate credit rating on Enemalta to 'B ' from 'BB'.

S&P also claimed its negative outlook for the corporation reflects its view that further deterioration of Enemalta's creditworthiness "may signal weakening government support."

The agency said the corporation continues to suffer from significant investment needs, poor profitability, and challenges in passing on rising input costs to consumers in what we view as a high tariff environment.

S&P said it was very likely that the Maltese government would provide "timely and sufficient extraordinary support" to the company in the event of financial distress.

Historically, Enemalta has benefited from state guarantees for most of its €600 million debt, for which the state has provided guarantees on short notice for the company's bank overdrafts and short-term loans.

2012 will see Enemalta spending €90 million on capital expenditure, €146 million of contractual debt amortisation, while getting €26 million from its operations and €150 million from two bank loans.

The corporation will probably extend its debt maturities to reduce refinancing risk over the next few years.