Reducing Enemalta tariffs is impossible, finance minister says

Finance Minister Tonio Fenech said a new rating analysis by Standard & Poor's has shown that any reduction in energy tariffs is impossible, due to the rising price of oil and the sustainability of Enemalta's operations.

"S&P's analysis shows talk of reducing tariffs is not feasible, because they are not even enough to cover Enemalta's operations," Fenech said.

Credit ratings agency Standard and Poor's yesterday said it would keep Enemalta's rating of B after having downgraded the corporation from BB back in February 2012. The outlook is still negative, reflecting the "very high" likelihood that government aid would continuing supporting Enemalta's operations, now wracked with over €600 million in long-term debt.

But S&P also conceded that given the already high energy costs in Malta, any move towards a tariff that reflects fully the cost of purchasing oil would be a "risk for the local economy".

"We consider Enemalta's business risk profile to be 'vulnerable', reflecting its poor profitability, high cost and old generation portfolio based mainly on fuel oil, exposure to oil prices, and lack of timely cost-reflective adjustments in the tariffs it is allowed to charge consumers. The tariffs weigh significantly on our view of the company's credit profile, especially in the current high oil price environment," S&P said.

In a comment, Tonio Fenech said the rating confirmed that reducing tariffs was also impossible.

"This comment clearly shows all populist discourse about reducing tariffs is not possible due to the rise in price of oil," Fenech said.

Fenech said government was committed to sustain Enemalta's operations in a bid to ensure no further burden from increased tariffs is passed on to households and businesses.

"S&P's report notes that government is subsidizing Enemalta so that tariffs are not increased against a rise in the international price of oil. This bears witness to the responsibility of this government when faced with higher fuel prices, by choosing to reduce spending on other items," Fenech said.

Referring to the €40 million cuts in spending announced back in January on the back of a Cabinet reshuffle, Fenech pointed out that the Opposition had been critical of the cuts.

Fenech also said the Delimara power station extension had been nominated as one of the Platts finalists for energy-efficient plants, and that the special purpose vehicle for the restructuring of long-term debt would be discussed in the coming days.