Standard & Poor's downgrades Enemalta credit rating to B- over €448 million debt

Enemalta Corporation has had its credit rating downgraded to B- by rating agency Standard and Poor’s as the corporation has taken on its most ambitious expansion programme in recent years.

25 January 2011, 12:00am
by Matthew Vella

3 min read

Updated with comments by Labour MP Charles Mangion at 10:30am

In a statement, the finance ministry said that amongst the reasons cited by S&P for the downgrade from BB+ was a lack of strong 'arrangements' with respect to Enemalta’s financial stability.

In October 2010 the agency had warned that risks from Enemalta could put downward pressure on Malta's creditworthiness if plans to reform its business model prove ineffective or if there is a downward revision of property prices.

S&P rates borrowers on a scale from AAA to D. Non-investment grades such as B indicate a financial situation that varies noticeably while CCC means the investment is currently vulnerable and dependent on favorable economic conditions to meet its commitments.

The ministry said that S&P found Enemalta’s past tariffs did not reflect the variations in the corporation’s expenditure on electricity generation, including the rise in oil prices which were not being entirely covered by government subsidies.

Another shortcoming was that past tariffs did not reflect the recent capital investment, amongst them a €200 million power station expansion that was the subject of an investigation by the National Audit Office.

However, Opposition finance spokesman Charles Mangion dismissed the ministry’s allusion to oil prices as an excuse: pointing towards the fact that Government had subsidized Enemalta’s expenditure on oil by as much as €80 million a year until 2009.

“To argue that the tariffs did not reflect the true price of oil is irrelevant, considering that the Government made good for the price difference in subsidies,” he told MaltaToday.

“It is far likelier that the financial difficulties were caused by inefficiencies and bad management practices over the years, which the Government has been unable to control.”

Either way, Enemalta’s losses are reflected in the large debt the corporation has accumulated: a cursory look at the NAO’s report for 2009 shows the corporation has €448 million in letters of comfort and bank guarantees for loans taken out. In 2008 its debt stood at €300m.

“This problem was addressed by a change in the methodology for the working of tariffs whcih incorporates the actual expense of electricity generation and the ROCE (return on capital employed) required for the Corporation to recover its investment,” the ministry said.

Enemalta still has not presented its latest financial records. The ministry said that Enemalta was working on a long-term plan at refinancing its debt and improve efficiency while curbing its spending.

“The S&P report also shows that proposals by the Opposition to reduce ROCE on its billing, the amount of which represents the cost of recovering the corporation’s investment, would lead to big difficulties for the corporation in financing the extension and electricity interconnector to Sicily,” the ministry said.

In 2005, Standard & Poor's had removed Enemalta Corporation from its Credit Watch and affirmed its BBB+ long-term corporate credit rating. The debt-ridden corporation had been placed on the Credit Watch in 2004. But S&P had also warned that the perceived weakening in the government's support for Enemalta would likely result in a downgrade, particularly if tariffs were not to become fully cost reflective.

Matthew Vella, a freelance journalist at MaltaToday, was formerly executive editor at Malt...

Luke Camilleri •

Another STATE-OF-THE-ART accomplishment for the Gonzi administration and his coterie of highly paid nincompoops or Maltese Cwiec he continues to nominate as CEOs , Chairmen and Board Members! Nominations that are never made by Public Call so the best canditates get the job! Malta truly needs STATE-OF-THE-ART administration....and Gonzipn is certainly not providing it with his state-of-the-art nominated blue-eyed boys!

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Kollox fallut hawn , ma nistghax nifhem kif meta ikunu jaraw enteta li qeda tfalli ikomplu jghabbuha bil-piz ta hafna managers biex ikomplu ikkissurha. Prosit lil Tarcisio Mifsud ta l-ispjega li taghna , haqqu prosit kbira ghax dejjem prova ighin biex enemalta ma tfalliex.

Alfred Galea •

The Greek govt. is suing Siemens coz it bribed one of its ministers.....Siemens was involved with BWSC in the Power Station scandal. There probably was no middleman between the minister and Siemens.......

Alfred Galea •

Very good comment Mr Mifsud......I suggest yo write the same comment in the PN Times coz the taxpayers need to hear what people like you have to say.

Mark Fenech •

Din id-darba sejjer nirrakkonta mill-ġdid din il-kwistjoni ta' l-Enemalta bil-malti halli kulħadd ikun jista' jifhem eżatt din il-problema. Mela mmorru għas-sena 1996 qabel inbidel il-gvern nazzjonalista li kien ilu jiggverna mill-1987. Tinsewx li l-aħħar li kienu żdiedu t-tariffi kien f'Jannar 1981 u mbaghad il-gvern laburista raħħashom f'Jannar 1983 u f'Jannar 1987. Mela it-tariffi ta' l-elettriku kienu ilhom meta telgħa l-gvern laburista f'Ottubru 1996 kważi 16 il-sena ma jiżdiedu. Jiena, bħala Financial Controller ta' l-Enemalta kont dejjem naghti l-opinjoni ġenwina tiegħi x'għandu jsir ghax il-korporazzjoni kienet dieħla ġol-ħajt. Il-gvern nazzjonalista qabel l-elezzjoni kien wiegħed lil l-Enemalta li din is-sitwazzjoni kien sejjer jara meta jerġa jkun fil-gvern wara Ottubru 1996. Hawn inbidel il-gvern u jiena allura bdejt ninforma lil Ministru l-ġdid laburista biex nieħdu azzjoni neċessarja għax il-korporazzjoni kienet sejra tfalli, ma ninsewx li l-korporazzjoni kienet issellef il-flus biex tibni l-ewwel fażi tal-power station ta' Delimara. Kontra li jgħid il-gvern nazzjonalista, dan qatt ma ta' milleżżmu biex tinbena din il-power station, imma riedet tkun l-Enemalta li tiffinanzja dan il-proġett. Mhux tgħalli l-gvern nazzjonalista ma tagħiex flus lil l-Enemalta, anzi ra kif għamel u l-qliegħ li kien isir fuq il-petrol u d-diesel beda jieħdu dirett billi għolla s-sisa mingħajr ma għola l-prezz għall-konsumatur, allura ħa flus li kienu jidħlu għand l-konrazzjoni. Il-Ministru Laburista bir-raġunar kollu ma qagħadx fuqi biss, imma ġab experti ngliżi, wieħed engineer u l-ieħor ekonomista biex jaraw din il-kwistjoni tat-tariffi u dawn għamlu rapport tajjeb ħafna, naħseb li kien l-aħjar wieħed li qatt sar u għamlu diversi suġġerimenti dwar kif għandhom jkunu xjentifikament it-tariffi l-ġodda biex jagħmlu tajjeb għad-dejn li kien hemm u li ried jitħallas. Hawn wieħed irid ifakkar li l-Water Service Corporation kienu daħħlu huma biex jibdew joħorġu l-kontijiet u huma kienu wegħdu li dan jagħmluh f'perijodu ta' 3 xhur bejn Gunju u Awwissu 1996. Dawn damu sa Jannar 1998 biex bdew joħorġu xi kontijiet. Kienu ġabu l-Enemalta bil-kemm kellha flus għall-pagi, u kellu jkun gvern laburista li għadda madwar 10 miljuni biex il-korporazzjoni tkun tista' tħallas l-obligi li kellha dak iż-żmien. Jiena kont mitlub nagħmel l-għażla min dawn it-tariffi, imma ridt ma nżiedx it-tariffi tal-lukandi għax it-turiżmu kien qala daqqa ta' ħarta fis-snin 1996, nżied ftit l-industrija u l-bqija mid-domestiku. Kull ma ridna nżidu kien biss dħul ta' LM4 miljuni - (anqas minn €10 miljuni) fis-sena. Wieħed kien irraġuna li meta sejrin jogħlew it-tariffi naturalment togħla l-ħajja, imma l-ħaddiema sejrin jieħdu ż-żieda mil-COLA u hekk l-affarijiet ikunu rranġaw ruħhom. Meta tħabbru dawn it-tariffi l-ġodda f'Novermbru 1997 qam pandemonju sħiħ, bil-GWU, UHM, GRTU u naturalment il-Partit Nazzjonalista. Kulħadd jgħid tiegħu u ħadd ma ried jisma' flix dak li jgħid huwa. Ma rridtx insemmi nies li llum qiegħdin f'pożizzjoni għolja dwar kemm ħaddmu kontra dawn it-tariffi meta dawn suppost kienu jafu' aħjar għaliex għolew. Imbagħad kien hemm inkwiet intern fil-gvern u partit laburista saret l-elezzjoni ta' 1998 u ntrebħet mill-Partit Nazzjonalista li kien wiegħed li sejjer ipoġġi r-rati fejn kienu fl-1996, imma meta telgħa ma għamilx hekk, imma xorta baxxa t-tariffi u għalhekk l-eżerċizzju daqshekk importanti ntilef. Wara l-gvernijiet nazzjonalisti ndunaw li kienu għamlu żball strateġiku, u kissru l-Enemalta u bil-flus li kienet qiegħda ddaħħal ma setgħux jagħmlu tajjeb għad-dejn li kien diġa hemm, u biex ikun hemm il-flus biex isir infieq kapitali meħtieġ, u għalhekk kellu jsir aktar dejn biex jiżdiedu l-impjani tal-ġenerazzjoni u titkabbar u tissaħħaħ is-sistema tat-trasmissjoni u distribuzzjoni. Bħal ma jaf kulħadd il-gvern nazzjonalista taħt il-ministru Austin Gatt, żied it-tariffi biex jikkorreġi l-iżbalji strateġiki tal-passat li għamel l-istess gvern, issa S+P ħarrġu b'dan ir-rapport u naqqsu r-rating ta' l-enemalta, li jfisser li issa l-korporazzjoni jkollha tħallas interessi aktar għoljin fuq id-dejn li għandha. Jiena spiċċat mill-Enemalta fi Frar 2004, min kemm ili li spiċċajt l-Enemalta marret aktar ħażin jejn b'amministrazzjonijiet li ħsiebhom mhux fuq affarijiet serji, bejn l-għoli taż-żejt, kriżijiet internazzjonali, imma l-korporazzjoni spiċċat li ma għandha xejn tagħha - l-anqas siġġu ma huwa tagħha, u dan għaliex in-net assets huma fin-negattiv. Kollox huwa tal-banek u tal-kredituri, li kieku mhux għax hemm il-poplu malti (gvern) jikkonferma li jagħmel tajjeb, kieku l-Enemalta ilha li telqet u għalhekk ħadd ma jrid jixtriha. Dawn huma l-fatti. Niżgurakom l-Enemalta trid ikollha amministrazzjoni ferm aktar tajba biex tagħmel tajjeb, mhux ħsieba fir-ritratti u anke dellijiet kbar ta' kurrizzjoni, li jkomplu jxekkluha milli taħdem ta' nies. Irrid ikollha kontrol sodd fuq il-finanzi, ġbir ta' flus fil-ħin mingħand kulħadd, inkella ma tasalx, u S+P u kumpaniji oħrajn bħala jkomplu jitfgħu l-isfel il-"credit rating" tagħha.

Alfred Galea •

" Tant ghamilna affarijiet tajbin li dawk li kienu kontra taghhom jghidu li ghamluwhom huma"......BIG DOM MINTOFF. He had/had more brains in his belt buckle than every PN PM has/had in his whole body.

Micheal Bonanno •

So Sant's HOFRA (financial hole) wasn't a HRAFA! (fable)! after all!

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The debt and the "Maltese" Greek problem is reading like a Garcia Marquez "Debt foretold". Il-Gahan Malti jibla dak li Jason Azzopardi bellalu il-bierah, jigiefieri li wara li ghajjarna kemm Mintoff hu qammiel( ghax kien bil-ghaqal) u ma ghamilx dejn, issa In-Nazzjonalisti "spendthrift" li kwazi gabuna fix-xifer ta falliment, qed jiehdu il-kredtu ta ghaqal Mintoffjan! Il-PN ma bieghawx assett wiehed li hu wiehed li waqfuh huma! Bieghu biss dk li kien kapaci iwwelled il-Partit Laburista! Anqas asett wiehed! Ibla Gahan Malti ghax ma haqqikx ahjar!

Jeffrey Vella •

It's no surprise really.The problem is that the burden of this ordeal is being passed on to the Maltese people.

Alfred Galea •

[Enemalta’s losses are reflected in the large debt the corporation has accumulated: a cursory look at the NAO’s report for 2009 shows the corporation has €448 million in letters of comfort and bank guarantees for loans taken out. In 2008 its debt stood at €300m.] So in one year, from 2008 to 2009 its debt went up by almost 50% and the 448 million does not include the debt for 2010. Par idejn sodi my ass.

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When Alfred Sant increased the tarrif to include enemalta expenses and it's debts 10 years ago the then serios full of dignity opposition PN stated that they will never increase the tariffs if elected and will even place them as before Alfred Sant increased them Today we all know the tariffs but the debt is still there and none gone in these last 10 years Any way the PN today is a calculator government too when it comes to their income and salary increase only and we tax payer pay their excess wages instead of the enemalta debt. Unfair how are taxes are prioritised

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Matrix I bet that you are right. Soon we will be hearing about an increase in the tariffs. This also does not take into account the €200 MILLION for the Malta-Sicily inter-connector, the €200 MILLION for the new power extension in both cases providing that the estimated prices are kept, but as we know they are never kept and all projects made by the PN regime have always cost 2 or 3 times their original estimate.

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This is very very worrying. What action is the government taking to tackle this problem and who is responsible for this debt!!! It seems only delaying tactics are being used by the government. It will soon emerge that many other institutions and organizations have excessive debt. But what is worrying even more is that the local banks loaned the funds to Enemalta. This can have serious financial repercussions in the long term to our nation's economic stability and growth.

Zack Depasquale •

Naghmel imhatra, li l-konsumatur sejjer jehel, ghax nahseb din thabbira bil-pulit jew skuza tajba dalwaqt jerga joghla id-dawl, imma kif hadd ma ghadu jisthi u jirrezenja f'dan il-pajjiz.

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Imbasta l-bierah fuq INKONTRI hlief ftahir u Rekords ma kellniex mid deputati Mario Demarcho u Jason. Ir rekords li jaqbel lilhom biss jsemmu u ftahir li qass flaht narah. Imghad jigi ex ministru jghid li l-faqar perception. Min ma jaqbadx Eur1900 daz zmien huwa fqir bil hajja dejjem tghola u kontijiet dejjem gejjin.!

Alfred Galea •

Way to go Austin Weasel, Tranter, Spiteri Gingell et al. A real "reference letter" for your present employers.